The Federal reserve act of 1913; history and digest

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THE

FEDERAL RESERVE ACT

OF 1913

HISTORY AND DIGEST

by
V. GILMORE IDEN

PUBLISHED BY

THE NATIONAL BANK NEWS
PHILADELPHIA

gb6 -^

'\'^

Copyright, 1914

by
Cornelius Baktr

History of Federal Reserve Act

History

N MONDAY, October 21, 1907, the Na-
tional Bank of Commerce of New York
City announced its refusal to clear for the
Knickerbocker Trust Company of the same
city. The trust company had deposits amounting
to $62,000,000. The next day, following a run of
three hours, the Knickerbocker Trust Company
paid out $8,000,000 and then suspended.

One immediate result was that banks, acting
independently, held on tight to the cash they had in
their vaults, and money went to a premium. Ac-
cording to the experts who investigated the situation,
this panic was purely a bankers' panic and due
entirely to our system of banking, which bases the
protection of the financial solidity of the country
upon the individual reserves of banks. In the case
of a stress, such as in 1907, the banks fail to act as
a whole, their first consideration being the protec-
tion of their own reserves.

' ' - ' '^ ■-- - '

- . PAGES

KJ O \j xJ ijf -^

History of Federal Reserve Act

The conditions surrounding previous panics
were entirely different. In 1873 the currency was
inconvertible and depreciated, and the banks could
not increase their available cash reserve by the
acquisition of gold. About twenty years later silver
purchases weakened the monetary structure and
caused distrust of American securities at home and
abroad. The panic of 1907 was not preceded by
any legislative disturbances or monetary unsound-
ness.

This panic was preceded by a season of great-
est prosperity. It was followed by a widespread
demand for currency reform. What economic stu-
dents had been urging for a long time at last, as
a result of this panic, culminated in the appoint-
ment of a National Monetary Commission by Con-
gress and ultimately in the Federal Reserve Act of
1913. A study of monetary conditions was author-
ized by a Republican administration, and remedial
legislation was enacted by a Democratic adminis-
tration.

PAGE 6

History of Federal Reserve Act

The immediate result of this panic was the
enactment of a temporary measure known as the
Aldrich-Vreeland emergency currency act, which
was to expire by limitation on June 30, 1914. This
act permitted the incorporation of national banks
into associations similar to clearing houses and the
issuance of "emergency" currency in times of stress
upon certain securities approved by the authority
of these associations and the govermnent, which se-
curities could be other than government bonds.

It was some time before the banks would or-
ganize under the authority of this act, the claim
being made that the law would not work. Finally
the Secretary of the Treasury during the Taft ad-
ministration persuaded the banks in a number of
the cities to organize. This, it was believed, was
merely for the purpose of a pretense, as no one ever
contemplated that the terms of the temporary act
would be put into practice, and experience since has
proven the truth of this prediction.

PAGE 7

History of Federal Reserve Act

The National Monetary Commission was com-
posed of Nelson W. Aldrich, of Rhode Island,
chairman; Edward B. Vreeland, of New York, vice
chairman; Julius C. Burrows, of Michigan; Eugene
Hale, of Maine; H. M. Teller, of Colorado; H. D.
Money, of Mississippi; Theodore E. Burton, of
Ohio; Jas. P. Taliaferro, of Florida; Boise Pen-
rose, of Pennsylvania; John W. Weeks, of Massa-
chusetts; Robert W. Bonynge, of Colorado; L. P.
Padgett, of Tennessee; Geo. F. Burgess, of Texas;
A. P. Pujo, of Louisiana; Geo. W. Prince, of Illi-
nois, and Jas. McLachlan, of California. A. Piatt
Andrew, of Massachusetts, later Assistant Secretary
of the Treasury during the Taft administration,
was employed as an assistant to the commission and
did most of the formulative work of that body.

The commission conducted investigations and
held hearings in this country and abroad. The
greater part of the energies of the commission, how-
ever, were expended in collecting an adequate work-
ing library. Volumes on the various banking sys-

PAGB8

History of Federal Reserve Act

terns of the world were prepared by the leading
economic students of the countries in question, and
all were published by the commission. Because of
the large monetary outlay made in this direction the
Democrats criticized the commission very severely.

The National Monetary Commission, upon in-
vestigation, discovered the principal defects in our
banking system to be in that: ^ Cit %^

"1 : We have no provision for the concentra-
tion of the cash reserves of the banks and for their
mobilization and use wherever needed in times of
trouble. Experience has shown that the scattered
cash reserves of our banks are inadequate for pur-
poses of assistance or defense at such times.

"2. Antiquated Federal and State laws re-
strict the use of bank reserves and prohibit the lend-
ing power of banks at times when, in the presence
of unusual demands, reserves should be freely used
and credit liberally extended to all deserving cus-
tomers.

PAGE 9

History of Federal Reserve Act

"3. Our banks also lack adequate means
available for use at any time to replenish their re-
serves or increase their loaning powers when neces-
sary to meet normal or unusual demands."

There were seventeen of these "principal" de-
fects in all, but this number will suffice to indicate
the remedy which would naturally be proposed. In
company with Dr. Andrew, Senator Aldrich finally
drafted a plan to remedy the conditions. It was
strictly Senator Aldrich's plan, but the Monetary
Commission gave it the stamp of approval. As
later appearing in the report of the commission, the
plan was as follows:

"It is proposed to incorporate the National
Reserve Association of the United States with an
authorized capital equal to 20 per cent of the capi-
tal of all subscribing banks, of which one-half
shall be paid in and the remainder shall become a
liability, subject to call * * * *. It is also
provided that before the reserve association can
commence business, $100,000,000 of capital must

• ■ ■

PAGE 10

History of Federal Reserve Act

be paid in cash. All State banks and trust com-
panies conforming to the provisions of the bill with
reference to capitalization and reserves and all Na-
tional banks are entitled to subscribe for stock and
to become members of the association. Shares in
the association are not transferable and can not be
owned otherwise than by a subscribing bank or in
any other than the proportion named.

"It is proposed to group into local associations
all subscribing banks located in contiguous terri-
tory. The local associations are to be organized
into district associations, in each of which shall be
located a branch of the National Reserve Associa-
tion; and the district associations, which shall be so
arranged as to include all the territory of the United
States, are combined to form the National Reserve
Association of the United States.

"One of the principal functions of the local
associations is to guarantee, upon application, the
commercial paper of individual banks which may be
offered to the branches for rediscount * * * *^

PAGE II

History of Federal Reserve Act

The local association may, and in most cases would,
require from the bank making the application satis-
factory security for the guarantee. Local associa-
tions are authorized in serious emergencies to guar-
antee the direct obligations of subscribing banks
with adequate security * * * *. a local as-
sociation may decline to give the guarantees pro-
vided for under either of these sections. Local as-
sociations may also, by vote of three-fourths of their
board of directors and the approval of the National
Reserve Association, assume and exercise the powers
and functions of clearing houses. They are re-
quired also to perform such services in facilitating
domestic exchanges as, in the opinion of the Na-
tional Reserve Association, the public interests may
require."

Speaking elsewhere in the report, the proposed
association was described as follows :

"It is not a bank, but a co-operative union of
all the banks of the country, with very limited and
clearly defined functions. First, it holds a portion

PAGE 12

History of Federal Reserve Act

of the cash reserves of the banks of the United
States, with the provision for their use only for
specific purposes ; second, it is granted the power to
issue circulating notes under strict governmental
regulations; third, through the maintenance of its
own reserves and the character and extent of its
resources, it is required to sustain the credit of the
banks and of the country imder all circumstances.
All of its operations are confined to, or incidental
to these purposes, the only exception being the trans-
action of its business as the fiscal agent of the gov-
ernment of the United States."

When the Democrats gained control of the
House of Representatives in the political elections
of 1910, the offices being filled in 1911, they forced
the National Monetary Commission to make its re-
port and wind up its work. In making this report,
Senator Aldrich outlined a plan for establishing a
National Reserve Association, with regional insti-
tutions as indicated above. Immediately the Demo-
crats attacked this as being typically republican

PAGE 13

History of Federal Reserve Act

and a plan that would tend further to concentrate
the control of money in Wall Street. Many sub-
stitute Democratic plans for monetary reform were
offered by the leaders of the party.

Beyond occasional discussion of the subject,
the banking question was not again brought to the
front until the Democratic platform of 1912 was
adopted in Baltimore. Concerning banking legis-
lation, this platform said:

"We oppose the so-called Aldrich bill, of the
establishment of a Central Bank, and we believe the
people of the country will be largely freed from
panics and consequent imemployment and business
depression by such a systematic revision of our
banking laws as will render temporary relief in lo-
calities where such relief is needed, with protection
from control or domination by what is known as the
Money Trust.

"Banks exist for the accommodation of the
public and not for the control of business. All

PAGE J4

V /

History of Federal Reserve Act

legislation on the subject of banking and currency
should have for its purpose the securing of these
accommodations on terms of absolute security to the
public and of complete protection from the misuse
of the power that wealth gives to those who possess
it.

"We condemn the present methods of deposit-
ing Government funds in a few favored banks,
largely situated in or controlled by Wall Street, in
return for political favors, and we pledge our party
to provide by law for their deposit by competitive
bidding in the banking institutions of the country.
National or State, without discrimination as to lo-
cality, upon approved securities, and subject to call
by the government."

While Chairman Pujo, of the House Banking
and Currency Committee, was, with the aid of At-
torney Samuel Untermyer, of New York, attempting
to unearth sensational data relative to the existence
of a Money Trust, Carter Glass, of Virginia, with
his sub-committee from the same committee, was

PAGE 15

History of Federal Reserve Act

giving serious consideration to real banking legisla-
tion. Because of the bizarre nature of the Money
Trust probe, but little was said of the Glass Com-
mittee, and thereby the country generally heard very
little about the plans for constructive legislation.

Mr. Glass called a notable array of witnesses,
including bankers from the most important financial
centers and monetary experts. The short session of
Congress came to an end on March 4, 1913, and the
extra session was called April 7 of the same year by
President Wilson to consider tariff revision.

Members of Congress are not students of
finance, but rather students of politics. That is
why it is so difficult for a scholar of finance to
fathom out the reasons for the interesting fight made
over the currency bill in the first and second ses-
sions of the 63rd Congress. For the same reason
those students of politics who did all the fighting
were unable to fully understand the financial prob-
lem which they were supposed to be remedying by
legislation.

PAGE i6

History of Federal Reserve Act

In the spring of 1913 the newspapers began to
publish reports that Carter Glass, the ranking Dem-
ocrat on the House Banking and Currency Com-
mittee, had drafted a currency bill to be proposed to
the President and Congress. As a matter of fact,
there was some doubt for a time whether Mr. Glass
would receive the chairmanship of that committee.
Finally precedent prevailed and Mr. Glass was
named chairman. H. Parker Willis, an economic
student, it was later discovered, had drafted a cur-
rency bill for Mr. Glass. Dr. Willis was then in the
employ of Mr. Glass as a monetary expert. The
bill which the newspapers attributed to Mr. Glass
was really the bill drafted by Dr. Willis. Follow-
ing the elections of 1912, Mr. Glass and Dr. Willis
had frequently gone to Trenton, N. J., for confer-
ences with President-elect Wilson on this matter. It
was presumed that they were, consequently, work-
ing in the interest of the new Democratic executive.

Only one thing stood in the way. That was
the tariff legislation, which was a party promise.

PAGE IT

History of Federal Reserve Act

So until this was assured, the President withheld his
consent to make a fight for currency legislation.
Consequently it was not until August 29 that the
currency bill was first introduced. This bill bore
the name of the Glass-Owen bill, because in its final
shape it was the result of conferences between Mr.
Glass, the President, Secretary of the Treasury Mc-
Adoo, Secretary of State Bryan and Senator Owen,
chairman of the newly organized Banking and Cur-
rency Committee of the Senate.

ijnasmuch as the bill was the joint product of
the leaders of both houses and the recognized re-
sponsible persons in the Democratic party, it was to
be expected that it would be easy to get it through
Congress. Such was not the case, however. Repre-
sentative Henry, of Texas, organized an insurgent
move against the bill. Mr. Henry, it was reported,
had a quarrel with the White House and hoped in
this manner to square matters. He obtained the
support of Representative Ragsdale, of South Caro-
lina, and Representative Wingo, of Arkansas, both

PAGE i8

History of Federal Reserve Act

members of the Banking and Currency Committee
and both new members in Congress. The Texas
Congressman based his fight upon the demand for
so-called "agricultural'' currency. He said that, in-
asmuch as the proposed bill provided for asset cur-
rency, it should permit a farmer to store his agricul-
tural products in warehouses and receive loans on
the warehouse receipts.

Only the Democratic members of the House
committee met to consider the bill introduced by Mr.
Glass, but the first meeting resulted in almost a
riot. It was impossible to accomplish anything.
Several meetings were wasted in a fruitless dis-
cussion of procedure. Finally, as a result of
pressure from the White House the Democrats
agreed upon a report on the bill, but the in-
surgents forced a caucus. As a result of the
caucus, which lasted over a week, all the Dem-
ocrats came together, and Mr. Henry retired
from the field of opposition. The Republican mem-
bers of the conmiittee were called in and a formal

PAGE 19

History of Federal Reserve Act

vote on the bill was taken. This resulted in a report
to the House on September 9, where the measure
was perfunctorily debated and finally adopted on
September 18 by a vote of 286 to 85.

The action of the House of Representatives
was so speedy that the country had hardly had time
to fully understand the measure that the new Demo-
cratic administration was forcing upon it. The
Senate had especially created a new committee, the
Committee on Banking and Currency, to consider
this measure, and placed at the head of it Senator
Robert L. Owen, of Oklahoma. Senator Owen had
made repeated attempts to call his committee to-
gether ever since the bill was introduced in the
House, but without success. The members of the
Senate committee were opposed to precipitated ac-
tion.

In August a hurried call of the American
Bankers' Association was convened in Chicago and
a committee of bankers elected to wait upon Con-

PAGE 30

History of Federal Reserve Act

grass. This committee was given definite instruc-
tions as to what features of the bill to oppose. The
bankers were permitted to appear before the Senate
committee the first of September.

This again brought forth some criticism from
the White House and the chairman of the House
banking committee, Mr. Glass. It was insisted that
the sole objection of the bankers to the House bill
was that it contemplated the shifting of bank re-
serves, and to this only the large banks in the re-
serve cities were opposed. The President was un-
willing that the Senate committee should delay ac-
tion long enough to listen to the arguments of the
bankers, but he failed to obtain his wish as com-
pletely as he did in the House.

The opening of hearings before the Senate
committee brought forth many witnesses who clam-
ored to be heard. The hearings stretched through
September and well up into October. The printed
records of these hearings covered many times the
number of pages as did the hearings before the

PAGE ii

History of Federal Reserve Act

House committee. The hearings were more com-
plete than the hearings on the House side because the
witnesses had a definite proposition before them to
discuss. Before these were completed a second con-
vention of bankers, more especially for the country
banks, was held in Boston, at which another delega-
tion was sent to oppose certain features of the bill
before the Senate committee.

The country bankers had many and varied com-
plaints to make. They opposed anything like a free
clearing house for checks, they opposed the large
subscription to stock of the reserve banks by country
banks and they opposed the establishment of savings
departments and the segregation of capital. But it
was not until the concluding days of the hearing that
the most dramatic moment was witnessed.

Frank A. Vanderlip, of the National City
Bank, New York City, reappeared as a witness be-
fore the committee, and offered a comprehensive
plan for the establishment of a central reserve bank,
owned by the public and banks jointly and controlled

PAGE a

History of Federal Reserve Act

by the government. It was evident that Mr. Van-
derlip had been requested to take this step
upon advice of certain members of the Senate com-
mittee. Later the truth of this assumption was veri-
fied, when the Republican members of the committee
reported this plan in modified form to the Senate.

Hearings were closed in October, and the full
membership of the Senate committee, both Republi-
cans and Democrats, went into executive session on
the bill. In the meantime repeated attempts were
made to persuade the President to permit Congress
to adjourn and to take up the currency bill at the
regular session to meet in December. This the
President consistently refused to do. As a conse-
quence the Congress remained technically in session
without stop, thereby merging the extra session
called in April with the regular session begiiming
the first Monday in December.

In the meantime the administration bill was by
no means having an easy time in committee. Upon
the fundamentals the administration Senators were

PAGE 23

History of Federal Reserve Act

every time outvoted. Senators O' Gorman, of New
York; Reed, of Missouri, and Hitchcock, of Ne-
braska, refused to stand in line with the administra-
tion's policies. The President called members of
the committee to the White House and lectured them
and did everything he could to whip them into line.
Finally he had his followers in the Senate call a
Democratic conference on the bill, having the state-
ment published that the Democrats could not stand
by any report from the committee which failed to
receive the support of the majority members.

Upon the day of the conference it was learned
that Senators O'Gorman and Reed were back in the
Democratic ranks, thereby permitting six Demo-
cratic Senators to come together on a bill. Senator
Hitchcock still remained recalcitrant. The Demo-
cratic conferen^ce was dismissed without action and
the six Democratic members of the committee left
the committee room and began preparing a report
on the bill in private. This left Senator Hitchcock
and five Republicans in the committee room, who

PAGE 24

History of Federal Reserve Act

also began the preparation of a separate report to
the Senate. On November 20 the two sections of
the committee came together and agreed to report
a disagreement to the Senate, transmitting two
recommendations on the House bill. The report
was filed with the Senate two days later.

Immediately plans were drawn for hurried ac-
tion on the bill. It was desirous that the measure
be placed on the statute books before the holiday
recess. A Democratic caucus was called which de-
cided to hold the Senate in daily sessions from 10
o'clock in the morning until 1 1 o'clock at night until
a final vote was had on the bill. Furthermore this
caucus took up the Democratic draft of the bill,
revised it slightly, and endorsed it for Democratic
favor.

This action practically assured the passage of
the Democratic measure, but the Republican minor-
ity in the Senate was able to compel some delay.
The minority was successful in keeping up the de-
bate until the week preceding Christmas. This

PAGE i5

History of Federal Reserve Act

was indeed a task as the Democrats indulged in the
debate but sparingly. Finally a vote v^as taken
on the evening of December 19, resulting in a vic-
tory for the Democratic measure by a vote of 54 to
34, several Republicans voting with the Democrats.
Plans had been perfected to have but three
conferees on the bill from either House, but because
this contemplated eliminating his name Senator
O 'Gorman raised an objection, wherefore the Sen-
ate appointed nine conferees, six Democrats and
three Republicans. The House appointed three
conferees, and the committee began its deliberations
on the afternoon of December 20. The conference
report was adopted on December 23, and the bill
signed by the President on the same day.

Congress immediately adjourned for a rest.
This brought to a conclusion possibly the most
noted session of Congress during the Wilson admin-
istration, a session which placed on the statute books
two intensely important measures, a Democratic
tariff law and the Federal Reserve Act. i

PACE 26

The Federal Reserve Act

The Federal Reserve Act

Be it enacted by the Senate and House of Represen-
tatives of the United States of America in Congress as-
sembled, That the short title of this Act shall be the
"Federal Reserve Act."

Wherever the word "bank" is used in this Act, the
word shall be held to include State bank, banking asso-
ciation, and trust company, except where national banks
or Federal reserve banks are specifically referred to.

The terms "national bank" and "national banking
association" used in this Act shall be held to be synony-
mous and interchangeable. The term "member bank"
shall be held to mean any national bank, State bank, or
bank or trust company which has become a member of
one of the reserve banks created by this Act. The term
"board" shall be held to mean Federal Reserve Board;
the term "district" shall be held to mean Federal reserve
district; the term "reserve bank" shall be held to mean
Federal reserve bank.

Federal Reserve Districts

Sec. 2. As soon as practicable, the Secretary of the
Treasury, the Secretary of Agriculture and the Comp-

FAGEi?

The Federal Reserve Act

troller of the Currency, acting as "The Reserve Bank
Organization Committee," shall designate not less than
eight nor more than twelve cities to be known as Federal
reserve cities, and shall divide the continental United
States, excluding Alaska, into districts, each district to
contain only one of such Federal reserve cities. The
determination of said organization committee shall not
be subject to review except by the Federal Reserve Board
when organized: Provided, That the districts shall be
apportioned with due regard to the convenience and cus-
tomary course of business and shall not necessarily be
coterminous with any State or States. The districts
thus created may be readjusted and new districts may
from time to time be created by the Federal Reserve
Board, not to exceed twelve in all. Such districts shall
be known as Federal reserve districts and may be desig-
nated by number. A majority of the organization com-
mittee shall constitute a quorum with authority to act.

Said organization committee shall be authorized to
employ counsel and expert aid, to take testimony, to send
for persons and papers, to administer oaths, and to make
such investigation as may be deemed necessary by the
said committee in determining the reserve districts and in
designating the cities within such districts where such
Federal reserve banks shall be severally located. The

PAGE 98

The Federal Reserve Act

said committee shall supervise the organization in each
of the cities designated of a Federal reserve bank, which
shall include in its title the name of the city in which
it is situated, as "Federal Reserve Bank of Chicago."

Under regulations to be prescribed by the organiza-
tion committee, every national banking association in the
United States is hereby required, and every eligible bank
in the United States and every trust company within the
District of Columbia, is hereby authorized to signify in
writing, within sixty days after the passage of this Act,
its acceptance of the terms and provisions hereof. When
the organization committee shall have designated the
cities in which Federal reserve banks are to be organized,
and fixed the geographical limits of the Federal reserve
districts, every national banking association within that
district shall be required within thirty days after notice
from the organization committee, to subscribe to the
capital stock of such Federal reserve bank in a sum equal
to six per centum of the paid-up capital stock and sur-
plus of such bank, one-sixth of the subscription to be
payable on call of the organization committee or of the
Federal Reserve Board, one-sixth within three months
and one-sixth within six months thereafter, and the re-
mainder of the subscription, or any part thereof, shall be
subject to call when deemed necessary by the Federal

PAGE 29

The Federal Reserve Act

Reserve Board, said payments ix> be in gold or gold cer-
tificates.

The shareholders of every Federal reserve bank
shall be held individually responsible, equally and ratably,
and not one for another, for all contracts, debts, and en-
gagements of such bank to the extent of the amount of
their subscriptions to such stock at the par vg,lue thereof
in addition to the amount subscribed, whether such sub-
scriptions have been paid up in whole or in part, under
the provisions of this Act.

Any national bank failing to signify its acceptance
of the terms of this Act within the sixty days aforesaid,
shall cease to act as a reserve agent, upon thirty days*
notice, to be given within the discretion of the said or-
ganization committee or of the Federal Reserve Board.

Should any national banking association in the
United States now organized fail within one year after
the passage of this Act to become a member bank or fail
to comply with any of the provisions of this Act applic-
able thereto, all of the rights, privileges, and franchises
of such association granted to it under the national-bank
Act, or under the provisions of this Act, shall be thereby
forfeited. Any noncompliance with or violation of this
Act shall, however, be determined and adjudged by any

PAGE 30

The Federal Reserve Act

court of the United States of competent jurisdiction in
a suit brought for that purpose in the District or Terri-
tory in which such bank is located, under direction of the
Federal Reserve Board, by the Comptroller of the Cur-
rency in his own name before the association shall be
declared dissolved. In cases of such noncompliance or
violation, other than the failure to become A member
bank under the provisions of this Act, every director
who participated in or assented to the same shall be held
liable in his personal or individual capacity for all dam-
ages which said bank, its shareholders, or any other per-
son shall have sustained in consequence of such violation.

Such dissolution shall not take away or impair any
remedy against such corporation, its stockholders or
officers, for any liability or penalty which shall have been
previously incurred.

Should the subscriptions by banks to the stock of
said Federal reserve banks or any one or more of them be,
in the judgment of the organization committee, insuffi-
cient to provide the amount of capital required therefor,
then and in that event the said organization committee
may, under conditions and regulations to be prescribed
by it, offer to public subscription at par such an amount
of stock in said Federal reserve banks, or any one or

PAGE 31

i

The Federal Reserve Act

more of them, as said committee shall determine, sub-
ject to the same conditions as to payment and stock lia-
bility as provided for member banks.

No individual, copartnership, or corporation other
than a member bank of its district shall be permitted to
subscribe for or to hold at any time more than $25,000
par value of stock in any Federal reserve bank. Such
stock shall be known as public stock and may be trans-
ferred on the books of the Federal reserve bank by the
chairman of the board of directors of such bank.

Should the total subscriptions by banks and the pub-
lic to the stock of said Federal reserve banks, or any one
or more of them, be, in the judgment of the organization
committee, insufficient to provide the amount of capital
required therefor, then and in that event the said or-
ganization committee shall allot to the United States
such an amount of said stock as said committee shall
determine. Said United States stock shall be paid for at
par out of any money in the Treasury not otherwise
appropriated, and shall be held by the Secretary of the
Treasury and disposed of for the benefit of the United
States in such manner, at such times, and at such price,
not less than par, as the Secretary of the Treasury shall
determine.

PAGE 32

The Federal Reserve Act

Stock not held by member banks shall not be en-
titled to voting power.

The Federal Reserve Board is hereby empowered
to adopt and promulgate rules and regulations govern-
ing the transfers of said stock.

No Federal reserve bank shall commence business
with a subscribed capital less than $4,000,000. The or-
ganization of reserve districts and Federal reserve cities
shall not be construed as changing the present status of
reserve cities and central reserve cities, except in so far
as this Act changes the amount of reserves that may be
carried with approved reserve agents located therein.
The organization committee shall have power to appoint
such assistants and incur such expenses in carrying out
the provisions of this Act as it shall deem necessary, and
such expenses shall be payable by the Treasurer of the
United States upon voucher approved by the Secretary
of the Treasury, and the sum of $100,000, or so much
thereof as may be necessary, is hereby appropriated, out
of any moneys in the Treasury not otherwise appropri-
ated, for the payment of such expenses.

Branch OflBces

Sec. 3. Each Federal reserve bank shall establish
branch banks within the Federal reserve district in which
it is located and may do so in the district of any Federal

PAGE 33

The Federal Reserve Act

reserve bank which may have been suspended. Such
branches shall be operated by a board of directors under
rules and regulations approved by the Federal Reserve
Board. Directors of branch banks shall possess the same
qualifications as directors of the Federal reserve banks.
Four of said directors shall be selected by the reserve
bank and three by the Federal Reserve Board, and they
shall hold office during the pleasure, respectively, of the
parent bank and the Federal Reserve Board. The re-
serve bank shall designate one of the directors as man-
ager.

Federal Reserve Banks

Sec. 4. When the organization committee shall
have established Federal reserve districts as provided in
section two of this Act, a certificate shall be filed with
the Comptroller of the Currency showing the geographi-
cal limits of such districts and the Federal reserve city
designated in each of such districts. The Comptroller
of the Currency shall thereupon cause to be forwarded
to each national bank located in each district, and to such
other banks declared to be eligible by the organization
committee which may apply therefor, an application
blank in form to be approved by the organization com-
mittee, which blank shall contain a resolution to be
adopted by the board of directors of each bank executing

PAGE 34

The Federal Reserve Act

I

such application, authorizing a subscription to the capi-
tal stock of the Federal reserve bank organizing in that
district in accordance with the provisions of this Act.

When the minimum amount of capital stock pre-
scribed by this Act for the organization of any Federal
reserve bank shall have been subscribed and allotted, the
organization committee shall designate any five banks of
those whose applications have been received, to execute
a certificate of organization, and thereupon the banks so
designated shall, under their seals, make an organization
certificate which shall specifically state the name of such
Federal reserve bank, the territorial extent of the district
over which the operations of such Federal reserve bank
are to be carried on, the city and State in which said
bank is to be located, the amount of capital stock and the
number of shares into which the same is divided, the
name and place of doing business of each bank execut-
ing such certificate, and of all banks which have sub-
scribed to the capital stock of such Federal reserve bank
and the number of shares subscribed by each, and the
fact that the certificate is made to enable those banks
executing same, and all banks which have subscribed or
may thereafter subscribe to the capital stock of such
Federal reserve bank, to avail themselves of the advant-
ages of this Act.

PAGE 35

The Federal Reserve Act

The said organization certificate shall be acknowl-
edged before a judge of some court of record or notary
public; and shall be, together with the acknowledgment
thereof, authenticated by the seal of such court, or no-
tary, transmitted to the Comptroller of the Currency,
who shall file, record and carefully preserve the same in
his office.

Upon the filing of such certificate with the Comp-
troller of the Currency as aforesaid, the said Federal
reserve bank shall become a body corporate and as such,
and in the name designated in such organization certifi-
cate, shall have power —

First. To adopt and use a corporate seal.

Second. To have succession for a period of twenty
years from its organization unless it is sooner dissolved
by an Act of Congress, or unless its franchise becomes
forfeited by some violation of law.

Third. To make contracts.

Fourth. To sue and be sued, complain and defend,
in any court of law or equity.

Fifth. To appoint by its board of directors, such
officers and employees as are not otherwise provided for
in this Act, to define their duties, require bonds of them

PAGE s6

The Federal Reserve Act

and fix the penalty thereof, and to dismiss at pleasure
such officers or employees.

Sixth. To prescribe by its board of directors, by-
laws not inconsistent with law, regulating the manner
in which its general business may be conducted, and the
privileges granted to it by law may be exercised and
enjoyed.

Seventh. To exercise by its board of directors, or
duly authorized officers or agents, all powers specifically
granted by the provisions of this Act and such incidental
powers as shall be necessary to carry on the business of
banking within the limitations prescribed by this Act.

Eighth. Upon deposit with the Treasurer of the
United States of any bonds of the United, States in the
manner provided by existing law relating to national
banks, to receive from the Comptroller of the Currency
circulating notes in blank, registered and countersigned
as provided by law, equal in amount to the par value of
the bonds so deposited, such notes to be issued under the
same conditions and provisions of law as relate to the
issue of circulating notes of national banks secured by
bonds of the United States bearing the circulating privi-
lege, except that the issue of such notes shall not be lim-
ited to the capital stock of such Federal reserve bank.

FACE 37

The Federal Reserve Act

But no Federal reserve bank shall transact any busi-
ness except such as is incidental and necessary prelim-
inary to its organization until it has been authorized by
the Comptroller of the Currency to commence business
under the provisions of this Act.

Every Federal reserve bank shall be conducted under
the supervision and control of a board of directors.

The board of directors shall perform the duties
usually appertaining to the office of directors of banking
associations and all such duties as are prescribed by law.

Said board shall administer the affairs of said bank
fairly and impartially and without discrimination in
favor of or against any member bank or banks and shall,
subject to the provisions of law and the order of the
Federal Reserve Board, extend to each member bank such
discounts, advancements and accommodations as may be
safely and reasonably made with due regard for the
claims and demands of other member banks.

Such board of directors shall be selected as herein-
after specified and shall consist of nine members, hold-
ing office for three years, and divided into three classes,
designated as classes A, B, and C.

PAGE 38

The Federal Reserve Act

Class A shall consist of three members, who shall
be chosen by and be representative of the stock-holding
banks.

Class B shall consist of three members, who at the
time of their election shall be actively engaged in their
district in commerce, agriculture or some other industrial
pursuit.

Class C shall consist of three members who shall
be designated by the Federal Reserve Board. When the
necessary subscriptions to the capital stock have been
obtained for the organization of any Federal reserve
bank, the Federal Reserve Board shall appoint the class
C directors and shall designate one of such directors as
chairman of the board to be selected. Pending the desig-
nation of such chairman, the organization committee shall
exercise the powers and duties appertaining to the office
of chairman in the organization of such Federal reserve
bank.

No Senator or Representative in Congress shall be
a member of the Federal Reserve Board or an officer
or a director of a Federal reserve bank.

No director of class B shall be an officer, director,
or employee of any bank.

PAGE 39

The Federal Reserve Act

No director of class C shall be an officer, director,
employee, or stockholder of any bank.

Directors of class A and class B shall be chosen in
the following manner:

The chairman of the board of directors of the Fed-
eral reserve bank of the district in which the bank is
situated or, pending the appointment of such chairman,
the organization committee shall classify the member
banks of the district into three general groups or divi-
sions. Each group shall contain as nearly as may be one-
third of the aggregate number of the member banks of
the district and shall consist, as nearly as may be, of
banks of similar capitalization. The groups shall be
designated by number by the chairman.

At a regularly called meeting of the board of di-
rectors of each member bank in the district it shall elect
by ballot a district reserve elector and shall certify his
name to the chairman of the board of directors of the
Federal reserve bank of the district. The chairman shall
make lists of the district reserve electors thus named by
banks in each of the aforesaid three groups and shall
transmit one list to each elector in each group.

Each member bank shall be permitted to nominate
to the chairman one candidate for director of class A

PAGE 40

The Federal Reserve Act

and one candidate for director of class B. The candi-
dates so nominated shall be listed by the chairman, in-
dicating by whom nominated, and a copy of said list
shall, within fifteen days after its completion, be
furnished by the chairman to each elector.

Every elector shall, within fifteen days after the
receipt of the said list, certify to the chairman his first,
second and other choices of a director of class A and
class B, respectively, upon a preferential ballot, on a form
furnished by the chairman of the board of directors
of the Federal reserve bank of the district. Each elector
shall make a cross opposite the name of the first, second
and other choices for a director of class A and for a
director of class B, but shall not vote more than one
choice for any one candidate.

Any candidate having a majority of all votes cast
in the column of first choice shall be declared elected.
If no candidate have a majority of all the votes in the
first column, then there shall be added together the votes
cast by the electors for such candidates in the second
column and the votes cast for the several candidates in
the first column. If any candidate then have a majority
of the electors voting, by adding together the first and
second choices, he shall be declared elected. If no candi-
date have a majority of electors voting when the first

PAGE 41

The Federal Reserve Act

and second choices shall have been added, then the votes
cast in the third column for other choices shall be added
together in like manner, and the candidate then having
the highest number of votes shall be declared elected.
An immediate report of election shall be declared.

Class C directors shall be appointed by the Federal
Reserve Board. They shall have been for at least two
years residents of the district for which they are ap-
pointed, one of whom shall be designated by said board
as chairman of the board of directors of the Federal
reserve bank and as "Federal reserve agent." He shall
be a person of tested banking experience; and in addi-
tion to his duties as chairman of the board of directors
of the Federal reserve bank he shall be required to main-
tain, under regulations to be established by the Federal
Reserve Board a local office of said board on the prem-
ises of the Federal reserve bank. He shall make regular
reports to the Federal Reserve Board, and shall act as
its official representative for the performance of the
functions conferred upon it by this Act. He shall re-
ceive an annual compensation to be fixed by the Federal
Reserve Board and paid monthly by the Federal reserve
bank to which he is designated. One of the directors
of class C, who shall be a person of tested banking
experience, shall be appointed by the Federal Reserve

PAGE 42

The Federal Reserve Act

Board as deputy chairman and deputy Federal reserve
agent to exercise the powers of the chairman of the
board and Federal reserve agent in case of absence or
disability of his principal.

Directors of Federal reserve banks shall receive,
in addition to any compensation otherwise provided, a
reasonable allowance for necessary expenses in attend-
ing meetings of their respective boards, which amount
shall be paid by the respective Federal reserve banks.
Any compensation that may be provided by boards of
directors of Federal reserve banks for directors, officers
or employees shall be subject to the approval of the Fed-
eral Reserve Board.

The Reserve Bank Organization Committee may,
in organizing Federal reserve banks, call such meetings
of bank directors in the several districts as may be neces-
sary to carry out the purposes of this Act, and may exer-
cise the functions herein conferred upon the chairman
of the board of directors of each Federal reserve bank
pending the complete organization of such bank.

At the first meeting of the full board of directors of
each Federal reserve bank, it shall be the duty of the
directors of classes A, B and C, respectively, to designate
one of the members of each class whose term of office shall

PAGE 43

The Federal Reserve Act

expire in one year from the first of January nearest to
date of such meeting, one whose term of office shall
expire at the end of two years from said date, and one
whose term of office shall expire at the end of three years
from said date. Thereafter every director of a Federal
reserve bank chosen as hereinbefore provided shall hold
office for a term of three years. Vacancies that may
occur in the several classes of directors of Federal re-
serve banks may be filled in the manner provided for the
original selection of such directors, such appointees to
hold office for the unexpired terms of their predecessors.

Stock Issues — Increase & Decrease of Capital

Sec. 5. The capital stock of each Federal reserve
bank shall be divided into shares of $100 each. The out-
standing capital stock shall be increased from time to
time as member banks increase their capital stock and
surplus or as additional banks become members, and
may be decreased as member banks reduce their capital
stock or surplus or cease to be members. Shares of the
capital stock of Federal reserve banks owned by mem-
ber banks shall not be transferred or hypothecated.
When a member bank increases its capital stock or sur-
plus, it shall thereupon subscribe for an additional
amount of capital stock of the Federal reserve bank of
its district equal to six per centum of the said increase,

PAGE 44

The Federal Reserve Act

one-half of said subscription to be paid in the manner
hereinbefore provided for original subscription and one-
half subject to call of the Federal Reserve Board. A
bank applying for stock in a Federal reserve bank at any
time after the organization thereof must subscribe for
an amount of the capital stock of the Federal reserve
bank equal to six per centum of the paid-up capital stock
and surplus of said applicant bank, paying therefor its
par value plus one-half of one per centum a month from
the period of the last dividend. When the capital stock
of any Federal reserve bank shall have been increased,
either on account of the increase of capital stock of mem-
ber banks or on account of the increase in the number
of member banks, the board of directors shall cause to
be executed a certificate to the Comptroller of the Cur-
rency showing the increase in capital stock, the amount
paid in, and by whom paid. When a member bank re-
duces its capital st^ck it shall surrender a proportionate
amount of its holdings in the capital of said Federal
reserve bank, and when a member bank voluntarily liqui-
dates it shall surrender all of its holdings of the capital
stock of said Federal reserve bank and be released from
its stock subscription not previously called. In either
case the shares surrendered shall be canceled and the
member bank shall receive in payment therefor, under
regulations to be prescribed by the Federal Reserve

PAGE 45

The Federal Reserve Act

Board, a sum equal to its cash-paid subscriptions on the
shares surrendered and one-half of one per centum a
month from the period of the last dividend, not to ex-
ceed the book value thereof, less any liability of such
member bank to the Federal reserve bank.

Sec. 6. If any member bank shall be declared in-
solvent and a receiver appointed therefor, the stock held
by it in said Federal reserve bank shall be canceled,
without impairment of its liability, and all cash-paid sub-
scriptions on said stock, with one-half of one per centum
per month from the period of last dividend, not to ex-
ceed the book value thereof, shall be first applied to all
debts of the insolvent member bank to the Federal re-
serve bank, and the balance, if any, shall be paid to the
receiver of the insolvent bank. Whenever the capital
stock of a Federal reserve bank is reduced, either on
account of a reduction in capital stock of any member
bank or of the liquidation or insolvency of such bank, the
board of directors shall cause to be executed a certificate
to the Comptroller of the Currency showing such reduc-
tion of capital stock and the amount repaid to such bank.

Division of Earnings

Sec. 7. After all necessary expenses of a Federal
reserve bank have been paid or provided for, the stock-
holders shall be entitled to receive an annual dividend

PAGE 46

The Federal Reserve Act

of six per centum on the paid-in capital stock, which
dividend shall be cumulative. After the aforesaid divi-
dend claims have been fully met, all the net earnings shall
be paid to the United States as a franchise tax, except
that one-half of such net earnings shall be paid into a
surplus fund until it shall amount to forty per centum
of the paid-in capital stock of such bank.

The net earnings derived by the United States from
Federal reserve banks shall, in the discretion of the Sec-
retary, be used to supplement the gold reserve held
against outstanding United States notes, or shall be
applied to the reduction of the outstanding bonded in-
debtedness of the United States under regulations to be
prescribed by the Secretary of the Treasury. Should a
Federal reserve bank be dissolved or go into liquidation,
any surplus remaining, after the payment of all debts,
dividend requirements as hereinbefore provided, and the
par value of the stock, shall be paid to and become the
property of the United States and shall be similarly ap-
plied.

Federal reserve banks, including the capital stock
and surplus therein and the income derived therefrom,
shall be exempt from Federal, State, and local taxation,
except taxes upon real estate.

PAGE 47

The Federal Reserve Act

Sec. 8. Section fifty-one hundred and fifty-four,
United States Revised Statutes, is hereby amended to
read as follows :

Any bank incorporated by special law of any State
or of the United States or organized under the general
laws of any State or of the United States and having an
unimpaired capital sufficient to entitle it to become a
national banking association under the provisions of the
existing laws may, by the vote of the shareholders own-
ing not less than fifty-one per centum of the capital
stock of such bank or banking association, with the ap-
proval of the Comptroller of the Currency, be converted
into a national banking association, with any name ap-
proved by the Comptroller of the Currency: Provided,
however, That said conversion shall not be in contra-
vention of the State law. In such case the articles of as-
sociation and organization certificate may be executed by
a majority of the directors of the bank or banking insti-
tution, and the certificate shall declare that the owners
of fifty-one per centum of the capital stock have author-
ized the directors to make such certificate and to change
or convert the bank or banking institution into a national
association. A majority of the directors, after executing
the articles of association and the organization certificate,
shall have power to execute all other papers and to do

PAGE 48

The Federal Reserve Act

whatever may be required to make its organization per-
fect and complete as a national association. The shares
of any such bank may continue to be for the same amount
each as they were before the conversion, and the directors
may continue to be directors of the association until
others are elected or appointed in accordance with the
provisions of the statutes of the United States. When
the comptroller has given to such bank or banking asso-
ciation a certificate that the provisions of this Act have
been complied with, such bank or banking association, and
all its stockholders, officers, and employees, shall have
the same powers and privileges, and shall be subject to
the same duties, liabilities, and regulations, m all respects,
as shall have been prescribed by the Federal Reserve Act
and by the national banking Act for associations origi-
nally organized as national banking associations.

State Banks as Members

Sec. 9. Any bank incorporated by special law of
any State, or organized under the general laws of any
State or of the United States, may make application to
the reserve bank organization committee, pending organi-
zation, and thereafter to the Federal Reserve Board for
the right to subscribe to the stock of the Federal reserve
bank organized or to be organized within the Federal
reserve district where the applicant is located. The or-

PAGE 49

The Federal Reserve Act

ganization committee or the Federal Reserve Board,
under such rules and regulations as it may prescribe,
subject to the provisions of this section, may permit the
applying bank to become a stockholder in the Federal
reserve bank of the district in which the applying bank
is located. Whenever the organization committee or the
Federal Reserve Board shall permit the applying bank to
become a stockholder in the Federal reserve bank of
the district, stock shall be issued and paid for under the
rules and regulations in this Act provided for national
banks which become stockholders in Federal reserve
banks.

The organization committee or the Federal Reserve
Board shall establish by-laws for the general government
of its conduct in acting upon applications made by the
State banks and banking associations and trust com-
panies for stock ownership in Federal reserve banks.
Such by-laws shall require applying banks not organized
under Federal law to comply with the reserve and capi-
tal requirements and to submit to the examination and
regulations prescribed by the organization committee or
by the Federal Reserve Board. . No applying bank shall
be admitted to membership in a Federal reserve bank
unless it possesses a paid-up unimpaired capital sufficient
to entitle it to become a national banking association in

PAGE 50

The Federal Reserve Act

the place where it is situated, under the provisions of
the national banking Act.

Any bank becoming a member of a Federal reserve
bank under the provisions of this section shall, in addi-
tion to the regulations and restrictions hereinbefore pro-
vided, be required to conform to the provisions of law
imposed on the national banks respecting the limitation
of liability which may be incurred by any person, firm,
or corporation to such banks, the prohibition against
making purchase of or loans on stiock of such banks, and
the withdrawal or impairment of capital, or the payment
of unearned dividends, and to such rules and regulations
as the Federal Reserve Board may, in pursuance there-
of, prescribe.

Such banks, and the officers, agents, and employees
thereof, shall also be subject to the provisions of and to
the penalties prescribed by sections fifty-one hundred and
ninety-eight, fifty-two hundred, fifty-two hundred and
one, and fifty-two hundred and eight, and fifty-two
hundred and nine of the Revised Statutes. The mem-
ber banks shall also be required to make reports of the
conditions and of the payments of dividends to the comp-
troller, as provided in sections fifty-two hundred and
eleven and fifty-two hundred and twelve of the Revised

PAGE SI

The Federal Reserve Act

Statutes, and shall be subject to the penalties prescribed
by section fifty- two hundred and thirteen for the failure
to make such report.

If at any time it shall appear to the Federal Reserve
Board that a member bank has failed to comply with the
provisions of this section or the regulations of the Fed-
eral Reserve Board, it shall be within the power of the
said board, after hearing, to require such bank to sur-
render its stock in the Federal reserve bank; upon such
surrender the Federal reserve bank shall pay the cash-
paid subscriptions to the said stock with interest at the
rate of one-half of one per centum per month, computed
from the last dividend, if earned, not to exceed the book
value thereof, less any liability to said Federal reserve
bank, except the subscription liability not previously
called, which shall be canceled, and said Federal reserve
bank shall, upon notice from the Federal Reserve Board,
be required fo suspend said bank from further privileges
of membership, and shall within thirty days of such
notice cancel and retire its stock and make payment there-
for in the manner herein provided.

The Federal Reserve Board may restore member-
ship upon due proof of compliance with the conditions
imposed by this section.

PAGE 52

The Federal Reserve Act

Federal Reserve Board

Sec. 10. A Federal Reserve Board is hereby cre-
ated which shall consist of seven members, including the
Secretary of the Treasury and the Comptroller of the
Currency, who shall be members ex-ofificio, and five mem-
bers appointed by the President of the United States, by
and with the advice and consent of the Senate. In select-
ing the five appointive members of the Federal Reserve
Board, not more than one of whom shall be selected from
any one Federal reserve district, the President shall have
due regard to a fair representation of the different com-
mercial, industrial and geographical divisions of the
country. The five members of the Federal Reserve
Board appointed by the President and confirmed as afore-
said shall devote their entire time to the business of the
Federal Reserve Board and shall each receive an annual
salary of $12,000, payable monthly together with actual
necessary traveling expenses, and the Comptroller of the
Currency, as ex-officio member of the Federal Reserve
Board, shall, in addition to the salary now paid him as
Comptroller of the Currency, receive the sum of $7,000
annually for his services as a member of said Board.

The members of said board, the Secretary of the
Treasury, the Assistant Secretaries of the Treasury, and
the Comptroller of the Currency shall be ineligible dur-

FAGE 53

The Federal Reserve Act

ing the time they are in office and for two years there-
after to hold any office, position, or employment in any
member bank. Of the five members thus appointed by
the President at least two shall be persons experienced
in banking or finance. One shall be designated by the
President to serve for two, one for four, one for six,
one for eight, and one for ten years, and thereafter each
member so appointed shall serve for a term of ten years
unless sooner removed for cause by the President. Of
the five persons thus appointed, one shall be designated
by the President as governor and one as vice-governor
of the Federal Reserve Board. The governor of the
Federal Reserve Board, subject to its supervision, shall
be the active executive officer. The Secretary of the
Treasury may assign offices in the Department of the
Treasury for the use of the Federal Reserve Board.
Each member of the Federal Reserve Board shall within
fifteen days after notice of appointment make and sub-
scribe to the oath of office.

The Federal Reserve Board shall have power to
levy semi-annually upon the Federal reserve banks, in
proportion to their capital stock and surplus, an assess-
ment sufficient to pay its estimated expenses and the sal-
aries of its members and employees for the half year suc-
ceeding the levying of such assessment, together with

FAGB $i

The Federal Reserve Act

any deficit carried forward from the preceding half
year.

The first meeting of the Federal Reserve Board
shall be held in Washington, District of Columbia, as
soon as may be after the passage of this Act, at a date
to be fixed by the Reserve Bank Organization Commit-
tee. The Secretary of the Treasury shall be ex-officio
chairman of the Federal Reserve Board. No member of
the Federal Reserve Board shall be an officer or director
of any bank, banking institution, trust company, or Fed-
eral reserve bank nor hold stock in any bank, banking
institution, or trust company; and before entering upon
his duties as a member of the Federal Reserve Board he
shall certify under oath to the Secretary of the Treasury
that he has complied with this requirement. Whenever
a vacancy shall occur, other than by expiration of term,
among the five members of the Federal Reserve Board
appointed by the President, as above provided, a succes-
sor shall be appointed by the President, with the advice
and consent of the Senate, to fill such vacancy, and when
appointed he shall hold office for the unexpired term of
the member whose place he is selected to fill.

The President shall have power to fill all vacancies
that may happen on the Federal Reserve Board during the
recess of the Senate, by granting commissions which

PAQB 55

The Federal Reserve Act

shall expire thirty days after the next session of the
Senate convenes.

Nothing in this Act contained shall be construed as
taking away any powers heretofore vested by law in the
Secretary of the Treasury which relate to the supervision,
management, and control of the Treasury Department
and bureaus under such department, and wherever any
power vested by this Act in the Federal Reserve Board or
the Federal reserve agent appears to conflict with the
powers of the Secretary of the Treasury, such powers
shall be exercised subject to the supervision and control
of the Secretary.

The Federal Reserve Board shall annually make a
full report of its operations to the Speaker of the House
of Representatives, who shall cause the same to be
printed for the information of the Congress.

Section three hundred and twenty- four of the Re-
vised Statutes of the United States shall be amended so
as to read as follows : There shall be in the Department
of the Treasury a bureau charged with the execution of
all laws passed by Congress relating to the issue and
regulation of national currency secured by United States
bonds and, under the general supervision of the Fed-
eral Reserve Board, of all Federal reserve notes, the

PAGE 56

The Federal Reserve Act

chief officer of which bureau shall be called the Comp-
troller of the Currency and shall perform his duties under
the general directions of the Secretary of the Treasury.

Sec. 11. The Federal Reserve Board shall be
^authorized and empowered:

(a) To examine at its discretion the accounts,
books and affairs of each Federal reserve bank and of
each member bank and to require such statements and
reports as it may deem necessary. The said board shall
publish once each week a statement showing the condi-
tion of each Federal reserve bank and a consolidated
statement for all Federal reserve banks. Such statements
shall show in detail the assets and liabilities of the Fed-
eral reserve banks, single and combined, and shall fur-
nish full information regarding the character of the
money held as reserve and the amount, nature and ma-
turities of the paper and other investments owned or
held by Federal reserve banks.

(b) To permit, or, on the affirmative vote of at
least five members of the Reserve Board, to require Fed-
eral reserve banks to rediscount the discounted paper of
other Federal reserve banks at rates of interest to be
fixed by the Federal Reserve Board.

PAGE 57

The Federal Reserve Act

(c) To suspend for a period not exceeding thirty
days, and from time to time to renew such suspension
for periods not exceeding fifteen days, any reserve re-
quirement specified in this Act: Provided, That it shall
establish a graduated tax upon the amounts by which
the reserve requirements of this Act may be permitted tq^
fall below the level hereinafter specified : And provided
further, That when the gold reserve held against Federal
reserve notes falls below forty per centum, the Federal
Reserve Board shall establish a graduated tax of not
more than one per centum per annum upon such defici-
ency until the reserves fall to thirty-two and one-half
per centum, and when said reserve falls below thirty-
two and one-half per centum, a tax at the rate increas-
ingly of not less than one and one-half per centum
per annum upon each two and one-half per centum or
fraction thereof that such reserve falls below thirty-two
and one-half per centum. The tax shall be paid by the
reserve bank, but the reserve bank shall add an amount
equal to said tax to the rates of interest and discount
fixed by the Federal Reserve Board.

(d) To supervise and regulate through the bureau
under the charge of the Comptroller of the Currency the
issue and retirement of Federal reserve notes, and to
prescribe rules and regulations under which such notes

PAGE 5*

The Federal Reserve Act

may be delivered by the Comptroller to the Federal re-
serve agents applying therefor.

(e) To add to the number of cities classified as re-
serve and central reserve cities under existing law in
which national banking associations are subject to the
reserve requirements set forth in section twenty of this
Act; or to reclassify existing reserve and central reserve
cities or to terminate their designation as such.

(f) To suspend or remove any officer or director
of any Federal reserve bank, the cause of such removal
to be forthwith communicated in writing by the Federal
Reserve Board to the removed officer or director and to
said bank.

(g) To require the writing off of doubtful or
worthless assets upon the books and balance sheets of
Federal reserve banks.

(h) To suspend, for the violation of any of the
provisions of this Act, the operations of any Federal
reserve bank, to take possession thereof, administer the
same during the period of suspension, and, when deemed
advisable, to liquidate or reorganize such bank.

(i) To require bonds of Federal reserve agents, to
make regulations for the safeguarding of all collateral,

PAGE S9

The Federal Reserve Act

bonds, Federal reserve notes, money or property of any
kind deposited in the hands of such agents, and said
board shall perform the duties, functions, or services
specified in this Act, and make all rules and regulations
necessary to enable said board effectively to perform the
same.

(j) To exercise general supervision over said Fed-
eral reserve banks.

(k) To grant by special permit to national banks
applying therefor, when not in contravention of State
or local law, the right to act as trustee, executor, admin-
istrator, or registrar of stocks and bonds under such rules
and regulations as the said board may prescribe.

(1) To employ such attorneys, experts, assistants,
clerks, or other employees as may be deemed necessary
to conduct the business of the board. All salaries and
fees shall be fixed in advance by said board and shall be
paid in the same manner as the salaries of the members
of said board. All such attorneys, experts, assistants,
clerks, and other employees shall be appointed without
regard to the provisions of the Act of January sixteenth,
eighteen hundred and eighty-three (volume twenty-two.
United States Statutes at Large, page four hundred and
three), and amendments thereto, or any rule or regula-

F AGE 60

The Federal Reserve Act

tion made in pursuance thereof: Provided, That noth-
ing herein shall prevent the President from placing said
employees in the classified service.

Federal Advisory Council

Sec. 12. There is hereby created a Federal Advis-
ory Council, which shall consist of as many members as
there are Federal reserve districts. Each Federal re-
serve bank by its board of directors shall annually select
from its own Federal reserve district one member of
said council, who shall receive such compensation and
allowances as may be fixed by his board of directors sub-
ject to the approval of the Federal Reserve Board. The
meetings of said advisory council shall be held at Wash-
ington, District of Columbia, at least four times each
year, and oftener if called by the Federal Reserve Board.
The council may, in addition to the meetings above pro-
vided for, hold such other meetings in Washington, Dis-
trict of Columbia, or elsewhere, as it may deem neces-
sary, may select its own officers and adopt its own
methods of procedure, and a majority of its members
shall constitute a quorum for the transaction of business.
Vacancies in the council shall be filled by the respective
reserve banks, and members selected to fill vacancies
shall serve for the unexpired term.

PAGE 6i

The Federal Reserve Act

The Federal Advisory Council shall have power, by
itself or through its officers, (1) to confer directly v^rith
the Federal Reserve Board on general business condi-
tions; (2) to make oral or written representations con-
cerning matters within the jurisdiction of said board;
(3) to call for information and to make recommenda-
tions in regard to discount rates, rediscount business, note
issues, reserve conditions in the various districts, the
purchase and sale of gold or securities by reserve banks,
open-market operations by said banks, and the general
affairs of the reserve banking system.

Powers of Federal Reserve Banks

Sec. 13. Any Federal reserve bank may receive
from any of its member banks, and from the United
States, deposits of current funds in lawful money,
national-bank notes, Federal reserve notes, or checks
and drafts upon solvent member banks, payable upon
presentation ; or, solely for exchange purposes, may
receive from other Federal reserve banks deposits of
current funds in lawful money, national-bank notes, or
checks and drafts upon solvent members of other
Federal reserve banks, payable upon presentation.

Upon the indorsement of any of its member banks,
with a waiver of demand, notice and protest by such
bank, any Federal reserve bank may discount notes.

PAGE 62

The Federal Reserve Act

drafts, and bills of exchange arising out of actual com-
mericial transactions; that is, notes, drafts, and bills
of exchange issued or drawn for agricultural, indus-
trial, or commercial purposes, or the proceeds of which
have been used, or are to be used, for such purposes,
the Federal Reserve Board to have the right to deter-
mine or define the character of the paper thus eligible
for discount, within the meaning of this Act. Noth-
ing in this Act contained shall be construed to prohibit
such notes, drafts, and bills of exchange, secured by-
staple agricultural products, or other goods, wares, or
merchandise from being eligible for such discount; but
such definition shall not include notes, drafts, or bills
covering merely investments or issued or drawn for
the purpose of carrying or trading in stocks, bonds, or
other investment securities, except bonds and notes of
the Government of the United States. Notes, drafts,
and bills admitted to discount under the terms of this
paragraph must have a maturity at the time of dis-
count, of not more than ninety days: Provided, That
notes, drafts, and bills drawn or issued for agricultural
purp>oses or based on live stock and having a maturity
not exceeding six months may be discounted in an amount
to be limited to a percentage of the capital of the Federal
reserve bank, to be ascertained and fixed by the Federal
Reserve Board.

PAGE 63

The Federal Reserve Act

Any Federal reserve bank may discount acceptances
which are based on the importation or exportation of
goods and which have a maturity at time of discount of
not more than three months, and indorsed by at least one
member bank. The amount of acceptances so discounted
shall at no time exceed one-half the paid-up capital
stock and surplus of the bank for which the rediscounts
are made.

The aggregate of such notes and bills bearing the
signature or indorsement of any one person, company,
firm, or corporation rediscounted for any one bank shall
at no time exceed ten per centum of the unimpaired
capital and surplus of said bank ; but this restriction shall
not apply to the discount of bills of exchange drawn in
good faith against actually existing values.

Any member bank may accept drafts or bills of ex-
change drawn upon it and growing out of transactions
involving the importation or exportation of goods hav-
ing not more than six months sight to run ; but no bank
shall accept such bills to an amount equal at any time
in the aggregate to more than one-half its paid-up capital
stock and surplus.

Section fifty-two hundred and two of the Revised
Statutes of the United States is hereby amended so as

PAGE 64

The Federal Reserve Act

to read as follows : No national banking association shall
at any time be indebted, or in any way liable, to an
amount exceeding the amount of its capital stock at such
time actually paid in and remaining undiminished by
losses or otherwise, except on account of demands of the
nature following:

First. Notes of circulation.

Second. Moneys deposited with or collected by the
association.

Third. Bills of exchange or drafts drawn against
money actually on deposit to the credit of the association,
or due thereto.

Fourth. Liabilities to the stockholders of the as-
sociation for dividends and reserve profits.

Fifth. Liabilities incurred under the provisions of
the Federal Reserve Act.

The rediscount by any Federal reserve bank of any
bills receivable and of domestic and foreign bills of ex-
change, and of acceptances authorized by this Act, shall
be subject to such restrictions, limitations, and regula-
tions as may be imposed by the Federal Reserve Board.

PAGE 6s

The Federal Reserve Act

Open Market Operations

Sec. 14. Any Federal reserve bank may, under
rules and regulations prescribed by the Federal Reserve
Board, purchase and sell in the open market, at home
or abroad, either from or to domestic or foreign banks,
firms, corporations, or individuals, cable transfers and
bankers' acceptances and bills of exchange of the kinds
and maturities by this Act made eligible for rediscount,
with or without the indorsement of a member bank.

Every Federal reserve bank shall have power:

(a) To deal in gold coin and bullion at home or
abroad, to make loans thereon, exchange Federal reserve
notes for gold, gold coin, or gold certificates, and to con-
tract for loans of gold coin or bullion, giving therefor,
when necessary, acceptable security, including the hy-
pothecation of United States bonds or other securities
which Federal reserve banks are authorized to hold ;

(b) To buy and sell, at home or abroad, bonds and
notes of the United States, and bills, notes, revenue
bonds, and warrants with a maturity from date of pur-
chase of not exceeding six months, issued in anticipation
of the collection of taxes or in anticipation of the receipt
of assured revenues by any State, county, district, po-
litical subdivision, or municipality in the continental

m^-^r-^ - ^

PAGE 66

The Federal Reserve Act

distj-icts, such purchases to be made in accordance with
rules and regulations prescribed by the Federal Reserve
Board ;

(c) To purchase from member banks and to sell,
with or without its indorsement, bills of exchange arising
out of commercial transactions, as hereinbefore defined:

(d) To establish from time to time, subject to re-
view and determination of the Federal Reserve Board,
rates of discount to be charged by the Federal reserve
bank for each class of paper, which shall be fixed with
a view of accommodating commerce and business;

(e) To establish accounts with other Federal re-
serve banks for exchange purposes and, with the consent
of the Federal Reserve Board, to open and maintain
banking accounts in foreign countries, appoint corre-
spondents, and establish agencies in such countries where-
soever it may deem best for the purpose of purchasing,
selling, and collecting bills of exchange, and to buy and
sell, with or without its indorsement, through such corre-
spondents or agencies, bills of exchange arising out of
actual commercial transactions which have not more
than ninety days to run and which bear the signature of
two or more responsible parties.

PAGE 67

The Federal Reserve Act

Government Deposits

Sec. 15. The moneys held in the general fund of
the Treasury, except, the five per centum fund for the
redemption of outstanding national-bank notes and the
funds provided in this Act for the redemption of Federal
reserve notes, may, upon the direction of the Secretary
of the Treasury, be deposited in Federal reserve banks,
which banks, when required by the Secretary of the
Treasury, shall act as fiscal agents of the United States ;
and the revenues of the Government or any part thereof
may be deposited in such banks, and disbursements may
be made by checks drawn against such deposits.

No public funds of the Philippine Islands, or of the
postal savings, or any Government funds, shall be de-
posited in the continental United States in any bank not
belonging to the system established by this Act: Pro-
vided, however, That nothing in this Act shall be con-
strued to deny the right of the Secretary of the Treasury
to use member banks as depositories.

Note Issues

Sec. 16. Federal reserve notes, to be issued at
the discretion of the Federal Reserve Board for the pur-
pose of making advances to Federal reserve banks
through the Federal reserve agents as hereinafter set

PAGE 68

The Federal Reserve Act

forth and for no other purpose, are hereby authorized.
The said notes shall be obligations of the United States
and shall be receivable by all national and member banks
and Federal reserve banks and for all taxes, customs,
and other public dues. They shall be redeemed in gold
on demand at the Treasury Department of the United
States, in the city of Washington, District of Columbia,
or in gold or lawful money at any Federal reserve bank.

Any Federal reserve bank may make application to
the local Federal reserve agent for such amount of the
Federal reserve notes hereinbefore provided for as it
may require. Such application shall be accompanied with
a tender to the local Federal reserve agent of collateral
in amount equal to the sum of the Federal reserve notes
thus applied for and issued pursuant to such application.
The collateral security thus offered shall be notes and
bills. accq;ited for rediscount under the provisions of
section thirteen of this Act, and the Federal reserve
agent shall each day notify the Federal Reserve Board
of all issues and withdrawals of Federal reserve notes
to and by the Federal reserve bank to which he is ac-
credited. The said Federal Reserve Board may at any
time call upon a Federal reserve bank for additional
security to protect the Federal reserve notes issued to it.

PAGE 69

The Federal Reserve Act

Every Federal reserve bank shall maintain reserves
in gold or lawful money of not less than thirty-five per
centum against its deposits and reserves in gold of not
less than forty per centum against its Federal reserve
notes in actual circulation, and not offset by gold or
lawful money deposited with the Federal reserve agent.
.Notes so paid out shall bear upon their faces a distinctive
letter and serial number, which shall be assigned by the
^Federal Reserve Board to each Federal reserve bank.
Whenever Federal reserve notes issued through one Fed-
eral reserve bank shall be received by another Federal
reserve bank they shall be promptly returned for credit
or redemption to the Federal reserve bank through which
they were originally issued. No Federal reserve bank
shall pay out notes issued through another under penalty
of a tax of ten per centum upon the face value of notes
so paid out. Notes presented for redemption at the
Treasury of the United States shall be paid out of the
redemption fund and returned to the Federal reserve
banks through which they were originally issued, and
thereupon such Federal reserve bank shall, upon demand
of the Secretary of the Treasury, reimburse such re-
demption fund in lawful money, or, if such Federal re-
serve notes have been redeemed by the Treasurer in
gold or gold certificates, then such funds shall be reim-

PAGB 70

The Federal Reserve Act

bursed to the extent deemed necessary by the Secre-
tary of the Treasury in gold or gold certificates, and
such Federal reserve bank shall, so long as any of its
Federal reserve notes remain outstanding, maintain with
the Treasurer in gold an amount sufficient in the judg-
ment of the Secretary to provide for all redemptions to
be made by the Treasurer. Federal reserve notes re-
ceived by the Treasury, otherwise than for redemption,
may be exchanged for gold out of the redemption fund
hereinafter provided and returned to the reserve bank
through which they were originally issued, or they may
be returned to such bank for the credit of the United
States. Federal reserve notes unfit for circulation shall
be returned by th^ Federal reserve agents to the Comp-
troller of the Currency for cancellation and destruction.

The Federaj Reserve Board shall require each Fed-
eral reserve bank to maintain on deposit in the Treasury
of the United States a sum in gold sufficient in the judg-
ment of the Secretary of the Treasury for the redemp-
tion of the Federal reserve notes issued to such bank,
but in no event less than five per centum; but such de-
posit of gold shall be counted and included as part of
the forty per centum reserve hereinbefore required. The
board shall have the right, acting through the Federal
reserve agent, to grant in whole or in part or to reject

PAGE 71

The Federal Reserve Act

entirely the application of any Federal reserve bank for
Federal reserve notes; but to the extent that such ap-
plication may be granted the Federal Reserve Board
shall, through its local Federal reserve agent, supply
Federal reserve notes to the bank so applying, and such
bank shall be charged with the amount of such notes and
shall pay such rate of interest on said amount as may
be established by the Federal Reserve Board, and the
amount of such Federal reserve notes so issued to any
such bank shall, upon delivery, together with such notes
of such Federal reserve bank as may be issued under
section eighteen of this Act upon security of United
States two per centum Government bonds, become a first
and paramount lien on all the assets of such bank.

Any Federal reserve bank may at any time reduce
its liability for outstanding Federal reserve notes by de-
positing, with the Federal reserve agent, its Federal
reserve notes, gold, gold certificates, or lawful money
of the United States. Federal reserve notes so depos-
ited shall not be reissued, except upon compliance with
the conditions of an original issue. '

The Federal reserve agent shall hold such gold,
gold certificates, or lawful money available exclusively
for exchange for the outstanding Federal reserve notes

PAGE 72

The Federal Reserve Act

when offered by the reserve bank of which he is a di-
rector. Upon the request of the Secretary of the Treas-
ury the Federal Reserve Board shall require the Federal
reserve agent to transmit so much of said gold to the
Treasury of the United States as may be required for
the exclusive purpose of the redemption of such notes.

Any Federal reserve bank may at its discretion with-
draw collateral deposited with the local Federal reserve
agent for the protection of its Federal reserve notes de-
posited with it and shall at the same time substitute
therefor other like collateral of equal amount with the
approval of the Federal reserve agent under regulations
to be prescribed by the Federal Reserve Board.

In order to furnish suitable notes for circulation as
Federal reserve notes, the Comptroller of the Currency
shall, under the direction of the Secretary of the Treas-
ury, cause plates and dies to be engraved in the best
manner to guard against counterfeits and fraudulent
alterations, and shall have printed therefrom and num-
bered such quantities of such notes, of the denominations
of $5, $10, $20, $50, $100, as may be required to supply
the Federal reserve banks. Such notes shall be in form
and tenor as directed by the Secretary of the Treasury
under the provisions of this Act and shall bear the

PAGE 72

The Federal Reserve Act

distinctive numbers of the several Federal reserve banks
through which they are issued.

When such notes have been prepared, they shall be
deposited in the Treasury, or in the subtreasury or mint
of the United States nearest the place of business of
each Federal reserve bank and shall be held for the use
of such bank subject to the order of the Comptroller of
the Currency for their delivery, as provided by this Act.

The plates and dies to be procured by the Comp-
troller of the Currency for the printing of such circulat-
ing notes shall remain under his control and direction,
and the expenses necessarily incurred in executing the
laws relating to the procuring of such notes, and all other
expenses incidental to their issue and retirement, shall
be paid by the Federal reserve banks, and the Federal
Reserve Board shall include in its estimate of expenses
levied against the Federal reserve banks a sufficient
amount to cover the expenses herein provided for.

The examination of plates, dies, bed pieces, and so
forth, and regulations relating to such examination of
plates, dies, and so forth, of national-bank notes pro-
vided for in section fifty-one hundred and seventy-four
Revised Statutes, is hereby extended to include notes
herein provided for.

PAGE 74

The Federal Reserve Act

Any appropriation heretofore made out of the gen-
eral funds of the Treasury for engraving plates and dies,
the purchase of distinctive paper, or to cover any other
expense in connection with the printing of national-bank
notes or notes provided for by the Act of May thirtieth,
nineteen hundred and eight, and any distinctive paper
that may be on hand at the time of the passage of this
Act may be used in the discretion of the Secretary for
the purposes of this Act, and should the appropriations
heretofore made be insufficient to meet the requirements
of this Act in addition to circulating notes provided for
by existing law, the Secretary is hereby authorized to
use so much of any funds in the Treasury not otherwise
appropriated for the purpose of furnishing the notes
aforesaid : Provided, however, That nothing in this sec-
tion contained shall be construed as exempting national
banks or Federal reserve banks from their liability to
reimburse the United States for any expenses incurred
in printing and issuing circulating notes.

Every Federal reserve bank shall receive on deposit
at par from member banks or from Federal reserve banks
checks and drafts drawn upon any of its depositors, and
when remitted by a federal reserve bank, checks and
drafts drawn by any depositor in any other Federal
reserve bank or member bank upon funds to the credit

PAGE 75

The Federal Reserve Act

of said depositor in said reserve bank or member bank.
Nothing herein contained shall be construed as prohibit-
ing a member bank from charging its actual expense in-
curred in collecting and remitting funds, or for exchange
sold to its patrons. The Federal Reserve Board shall,
by rule, fix the charges to be collected by the member
banks from its patrons whose checks are cleared through
the Federal reserve bank and the charge which may
be imposed for the service of clearing or collection ren-
dered by the Federal reserve bank.

The Federal Reserve Board shall make and promul-
gate from time to time regulations governing the transfer
of funds and charges therefor among Federal reserve
banks and their branches, and may at its discretion exer-
cise the functions of a clearing house for such Federal
reserve banks, or may designate a Federal reserve bank
to exercise such functions, and may also require each
such bank to exercise the functions of a clearing house
for its member banks.

Sec. 17. So much of the provisions of section
fifty-one hundred and fifty-nine of the Revised Statutes
of the United States, and section four of the Act of
June twentieth, eighteen hundred and seventy-four, and
section eight of the Act of July twelfth, eighteen hun-

PAGE 76

The Federal Reserve Act

dred and eighty-two, and of any other provisions of
existing statutes as require that, before any national
banking association shall be authorized to commence
banking business, it shall transfer and deliver to the
Treasurer of the United States a stated amount of
United States registered bonds is hereby repealed.

Refunding Bonds j?*^

Sec. 18. After two years from the passage of this
Act, and at any time during a period of twenty years
thereafter, any member bank desiring to retire the whole
or any part of its circulating notes, may file with the
Treasurer of the United States an application to sell for
its account, at par and accrued interest. United States
bonds securing circulation to be retired.

The Treasurer shall, at the end of each quarterly
period, furnish the Federal Reserve Board with a list
of such applications, and the Federal Reserve Board
may, in its discretion, require the Federal reserve banks
to purchase such bonds from the banks whose applica-
tions have been filed with the Treasurer at least ten days
before the end of any quarterly period at which the
Federal Reserve Board may direct the purchase to be
made: Provided, That Federal reserve banks shall not

PAGE 77

The Federal Reserve Act

be permitted to purchase an amount to exceed $25,000,-
000 of such bonds in any one year, and which amount
shall include bonds acquired under section four of this
Act by the Federal reserve bank. Provided further, That
the Federal Reserve Board shall allot to each Federal
reserve bank such proportion of such bonds as the capital
and surplus of such bank shall bear to the aggregate capi-
tal and surplus of all the Federal reserve banks.

Upon notice from the Treasurer of the amount of
bonds so sold for its account, each member bank shall
duly assign and transfer, in writing, such bonds to the
Federal reserve bank purchasing the same, and such
Federal reserve bank shall, thereupon, deposit lawful
money with the Treasurer of the United States for the
purchase price of such bonds, and the Treasurer shall
pay to the member bank selling such bonds any balance
due after deducting a sufficient sum to redeem its out-
standing notes secured by such bonds, which notes shall
be canceled and permanently retired when redeemed.

The Federal reserve banks purchasing such bonds
shall be permitted to take out an amount of circulating
notes equal to the par value of such bonds.

Upon the deposit with the Treasurer of the United
States of bonds so purchased, or any bonds with the
circulating privilege acquired under section four of this

PAGE 7%

The Federal Reserve Act

Act, any Federal reserve bank making such deposit in
the manner provided by existing law, shall be entitled
to receive from the Comptroller of the Currency circulat-
ing notes in blank, registered and countersigned as pro-
vided by law, equal in amount to the par value of the
bonds so deposited. Such notes shall be the obligations
of the Federal reserve bank procuring the same, and
shall be in form prescribed by the Secretary of the Treas-
ury, and to the same tenor and effect as national-bank
notes now provided by law. They shall be issued and re-
deemed under the same terms and conditions as national-
bank notes except that they shall not be limited to the
amount of the capital stock of the Federal reserve bank
issuing them.

Upon application of any Federal reserve bank, ap-
proved by the Federal Reserve Board, the Secretary of
the Treasury may issue, in exchange for United States
two per centum gold bonds bearing the circulation privi-
lege, but against which no circulation is outstanding, one-
year gold notes of the United States without the circula-
tion privilege, to an amount not to exceed one half of
the two per centum bonds so tendered for exchange, and
thirty-year three per centum gold bonds without the cir-
culation privilege for the remainder of the two per
centum bonds so tendered: Provided, That at the time

PAGE 79

The Federal Reserve Act

of such exchange the Federal reserve bank obtaining
such one-year gold notes shall enter into an obligation
with the Secretary of the Treasury binding itself to pur-
chase from the United States for gold at the maturity
of such one-year notes, an amount equal to those deliver-
ed in exchange for such bonds, if so requested by the
Secretary, and at each maturity of one-year notes so
purchased by such Federal reserve bank, to purchase
from the United States such an amount of one-year
notes as the Secretary may tender to such bank, not to
exceed the amount issued to such bank in the first in-
stance, in exchange for the two per centum United States
gold bonds ; said obligation to purchase at maturity such
notes shall continue in force for a period not to exceed
thirty years.

For the purpose of making the exchange herein
provided for, the Secretary of the Treasury is authorized
to issue at par Treasury notes in coupon or registered
form as he may prescribe in denominations of one hun-
dred dollars, or any multiple thereof, bearing interest
at the rate of three per centum per annum, payable
quarterly, such Treasury notes to be payable not more
than one year from the date of their issue in gold coin
of the present standard value, and to be exempt as to
principal and interest from the payment of all taxes

PAGE 80

The Federal Reserve Act

and duties of the United States except as provided by
this Act, as well as from taxes in any form by or under
State, municipal, or local authorities. And for the same
purpose, the Secretary is authorized and empowered to
issue United States gold bonds at par, bearing three per
centum interest, payable thirty years from date of issue,
such bonds to be of the same general tenor and effect and
to be issued under the same general terms and conditions
as the United States three per centum bonds without the
circulation privilege now issued and outstanding.

Upon application of any Federal reserve bank, ap-
proved by the Federal Reserve Board, the Secretary may
issue at par such three per centum bonds in exchange
for the one-year gold notes herein provided for.

Bank Reserves

Sec. 19. Demand deposits within the meaning of
this Act shall comprise all deposits payable within thirty
days, and time deposits shall comprise all deposits pay-
able after thirty days, and all savings accounts and cer-
tificates of deposit which are subject to not less than
thirty days' notice before payment.

When the Secretary of the Treasury shall have
officially announced, in such manner as he may elect, the
establishment of a Federal reserve bank in any district,

PAGE 8i

The Federal Reserve Act

every subscribing member bank shall establish and main-
tain reserves as follows:

(a) A bank not in a reserve or central reserve city
as now or hereafter defined shall hold and maintain
reserves equal to twelve per centum of the aggregate
amount, of its demand deposits and five per centum of
its time deposits, as follows :

In its vaults for a period of thirty-six months after
said date five-twelfths thereof and permanently there-
after four-twelfths.

In the Federal reserve bank of its district, for a
period of twelve months after said date, two-twelfths,
and for each succeeding six months an additional one-
twelfth, until five-twelfths have been so deposited, which
shall be the amount permanently required.

For a period of thirty-six months after said date the
balance of the reserves may be held in its own vaults, or
in the Federal reserve bank, or in national banks in re-
serve or central reserve cities as now defined by law.

After said thirty-six months' period said reserves,
other than those hereinbefore required to be held in the
vaults of the member bank and in the Federal reserve
bank, shall be held in the vaults of the member bank or

PAGE 82

The Federal Reserve Act

in the Federal reserve bank, or in both, at the option of
the member bank.

(b) A bank in a reserve city, as now or hereafter
defined, shall hold and maintain reserves equal to fifteen
per centum of the aggregate amount of its demand de-
posits and five per centum of its time deposits, as follows :

In its vaults for a period of thirty-six months after
said date six-fifteenths thereof, and permanently there-
after five-fifteenths.

In the Federal reserve bank of its district for a
period of twelve months after the date aforesaid at least
three-fifteenths, and for each succeeding six months an
additional one-fifteenth, until six-fifteenths have been so
deposited, which shall be the amount permanently
required.

For a period of thirty-six months after said date,
the balance of the reserves may be held in its own vaults,
or in the Federal reserve bank, or in national banks in
reserve or central reserve cities as now defined by law.

After said thirty-six months' period all of said re-
serves, except those hereinbefore required to be held
permanently in the vaults of the member bank and in
the Federal reserve bank, shall be held in its vaults or

PAGE 83

The Federal Reserve Act

in the Federal reserve bank, or in both, at the option of
the member bank.

(c) A bank in a central reserve city, as now or
hereafter defined, shall hold and maintain a reserve equal
to eighteen per centum of the aggregate amount of its
demand deposits and five per centum of its time deposits,
as follows:

In its vaults six-eighteenths thereof.

In the Federal reserve bank seven-eighteenths.

The balance of said reserves shall be held in its own
vaults or in the Federal reserve bank, at its option.

Any Federal reserve bank may receive from the
member banks as reserves, not exceeding one-half of
each installment, eligible paper as described in section
fourteen properly indorsed and acceptable to the said
reserve bank.

If a State bank or trust company is required by the
law of its State to keep its reserves either in its own
vaults or with another State bank or trust company, such
reserve deposits so kept in such State bank or trust com-
pany shall be construed, within the meaning of this sec-
tion, as if they were reserve deposits in a national bank

PAGE 84

The Federal Reserve Act

in a reserve or central reserve city for a period of three
years after the Secretary of the Treasury shall have of-
ficially announced the establishment of a Federal reserve
bank in the district in which such State bank or trust
company is situate.

Except as thus provided, no member bank shall keep
on deposit with any non-member bank a sum in excess
of ten per centum of its own paid-up capital and surplus.
No member bank shall act as the medium or agent of a
non-member bank in applying for or receiving discounts
from a Federal reserve bank under the provisions of this
Act except by permission of the Federal Reserve Board.

The reserve carried by a member bank with a Fed-
eral reserve bank may, under the regulations and subject
to such penalties as may be prescribed by the Federal
Reserve Board, be checked against and withdrawn by
such member bank for the purpose of meeting existing
liabilities: Provided, however, That no bank shall at
any time make new loans or shall pay any dividends un-
less and until the total reserve required by law is fully
restored.

In estimating the reserves required by this Act,
the net balance of amounts due to and from other banks
shall be taken as the basis for ascertaining the deposits

PAGE 85

The Federal Reserve Act

against which reserves shall be determined. Balances
in reserve banks due to member banks shall, to the ex-
tent herein provided, be counted as reserves.

National banks located in Alaska or outside the con-
tinental United States may remain non-member banks,
and shall in that event maintain reserves and comply
with all the conditions now provided by law regulating
them; or said banks, except in the Philippine Islands,
may, with the consent of the Reserve Board, become
member banks of any one of the reserve districts, and
shall, in that event, take stock, maintain reserves, and
be subject to all the other provisions of this Act.

Sec. 20. So much of sections two and three of the
Act of June twentieth, eighteen hundred and seventy-
four, entitled '*An Act fixing the amount of United
States notes, providing for a redistribution of the na-
tional-bank currency, and for other purposes," as pro-
vides that the fund deposited by any national banking
association with the Treasurer of the United States for
the redemption of its notes shall be counted as a part
of its lawful reserve as provided in the Act aforesaid
is hereby repealed. And from and after the passage
of this Act such fund of five per centum shall in no
case be counted by any national banking association as
a part of its lawful reserve.

PAGE 86

The Federal Reserve Act

Bank Examinations

Sec. 21. Section fifty-two hundred and forty.
United States Revised Statutes, is amended to read as
follows :

The Comptroller of the Currency, with the approval
of the Secretary of the Treasury, shall appoint examiners
who shall examine every member bank at least twice in
each calendar year and oftener if considered necessary:
Provided, however. That the Federal Reserve Board may
authorize examination by the State authorities to be ac-
cepted in the case of State banks and trust companies
and may at any time direct the holding of a special ex-
amination of State banks or trust companies that are
stockholders in any Federal reserve bank. The examiner
making the examination of any national bank, or of any
other member bank, shall have power to make a thorough
examination of all the affairs of the bank, and in doing
so he shall have power to administer oaths and to ex-
amine any of the officers and agents thereof under oath
and shall make a full and detailed report of the condi-
tion of said bank to the Comptroller of the Currency.

The Federal Reserve Board, upon the recommenda-
tion of the Comptroller of the Currency, shall fix the
salaries of all bank examiners and make report thereof

PAGE 87

The Federal Reserve Act

to Congress. The expense of the examinations herein
provided for shall be assessed by the Comptroller of the
Currency upon the banks examined in proportion to as-
sets or resources held by the banks upon the date of
examination of the various banks.

In addition to the examinations made and conducted
by the Comptroller of the Currency, every Federal re-
serve bank may, with the approval of the Federal reserve
agent or the Federal Reserve Board, provide for special
examination of member banks within its district. The
expense of such examinations shall be borne by the bank
examined. Such examinations shall be so conducted as
to inform the Federal reserve bank of the condition of
its member banks and of the lines of credit which are
being extended by them. Every Federal reserve bank
shall at all times furnish to the Federal Reserve Board
such information as may be demanded concerning the
condition of any member bank within the district of the
said Federal reserve bank.

No bank shall be subject to any visitatorial powers
other than such as are authorized by law, or vested in
the courts of justice or such as shall be or shall have
been exercised or directed by Congress, or by either
House thereof or by any committee of Congress or of
either House duly authorized.

PAGE 88

The Federal Reserve Act

The Federal Reserve Board shall, at least once each
year, order an examination of each Federal reserve
bank, and upon joint application of ten member banks
the Federal Reserve Board shall order a special exam-
ination and report of the condition of any Federal
reserve bank.

Sec. 22. No member bank or any officer, director,
or employee thereof shall hereafter make any loan or
grant any gratuity to any bank examiner. Any bank
officer, director, or employee violating this provision
shall be deemed guilty of a misdemeanor and shall be
imprisoned not exceeding one year or fined not more
than $5,000, or both; and may be fined a further sum
equal to the money so loaned or gratuity given. Any
examiner accepting a loan or gratuity from any bank
examined by him or from an officer, director or employee
thereof shall be deemed guilty of a misdemeanor and
shall be imprisoned not exceeding one year or fined not
more than $5,000, or both; and may be fined a further
sum equal to the money so loaned or gratuity given;
and shall forever threreafter be disqualified from hold-
ing office as a national-bank examiner. No national-
bank examiner shall perform any other service for com-
pensation while holding such office for any bank or
officer, director, or employee thereof.

PAGB Sg

The Federal Reserve Act

Other than the usual salary or director's fee paid
to any officer, director, or employee of a member bank
and other than a reasonable fee paid by said bank to
such officer, director, or employee for services rendered
to such bank, no officer, director, employee, or attorney
of a member bank shall be a beneficiary of or receive,
directly or indirectly, any fee, commission, gift, or other
consideration for or in connection with any transaction
or business of the bank. No examiner, public or private,
shall disclose the names of borrowers or the collateral
for loans of a member bank to other than the proper
officers of such bank without first having obttained the
express permission in writing from the Comptroller of
the Currency or from the board of directors of such
bank, except when ordered to do so by a court of com-
petent jurisdiction, or by direction of the Congress of
the United States, or of either House thereof, or of any
committee of Congress or of either House duly author-
ized. Any person violating any provision of this section
shall be punished by a fine of not exceeding $5,000 or by
imprisonment not exceeding one year, or both.

Except as provided in existing laws, this provision
shall not take effect until sixty days after the passage
of this Act.

PAGE go

The Federal Reserve Act

Sec. 23. The stockholders of every national bank-
ing association shall be held individually responsible for
all contracts, debts and engagements of such association,
each to the amount of his stock therein, at the par value
thereof in addition to the amount invested in such stock.
The stockholders in any national banking association
who shall have transferred their shares or registered the
transfer thereof within sixty days next before the date
of the failure of such association to meet its obligations,
or with knowledge of such impending failure, shall be
liable to the same extent as if they had made no such
transfer, to the extent that the subsequent transferee
fails to meet such liability ; but this provision shall not be
construed to affect in any way any recourse which such
shareholders might otherwise have against those in
whose names such shares are registered at the time of
such failure.

Loans on Farm Lands

Sec. 24. Any national banking association not sit-
uated in a central reserve city may make loans secured
by improved and unencumbered farm land, situated
within its Federal reserve district, but no such loan shall
be made for a longer time than five years, nor for an
amount exceeding fifty per centum of the actual value of
the property offered as security. Any such bank may

PAGE 9.1

The Federal Reserve Act

make such loans in an aggregate sum equal to twenty-
five per centum of its capital and surplus or to one-third
of its time deposits, and such banks may continue here-
after as heretofore to receive time deposits and to pay
interest on the same.

The Federal Reserve Board shall have power from
time to time to add to the list of cities in which national
banks shall not be permitted to make loans secured upon
real estate in the manner described in this section.

Foreign Branches

Sec. 25. Any national banking association possess-
ing a capital and surplus of $1,000,000 or more may file
application with the Federal Reserve Board, upon such
conditions and under such regulations as may be pre-
scribed by the said board, for the purpose of securing
authority to establish branches in foreign countries or
dependencies of the United States for the furtherance
of the foreign commerce of the United States, and to
act, if required to do so, as fiscal agents of the United
States. Such application shall specify, in addition to
the name and capital of the banking association filing
it, the place or places where the banking operations pro-
posed are to be carried on, and the amount of capital set
aside for the conduct of its foreign business. The Fcd-

P4GE99

The Federal Reserve Act

eral Reserve Board shall have power to approve or to
reject such application if, in its judgment, the amount of
capital proposed to be set aside for the conduct of foreign
business is inadequate, or if for other reasons the grant-
ing of such application is deemed inexpedient.

Every national banking association which shall re-
ceive authority to establish foreign branches shall be
required at all times to furnish information concerning
the condition of such branches to the Comptroller of the
Currency upon demand, and the Federal Reserve Board
may order special examinations of the said foreign
branches at such time or times as it may deem best.
Every such national banking association shall conduct
the accounts of each foreign branch independently of
the accounts of other foregn branches established by it
and of its home office, and shall at the end of each fiscal
period transfer to its general ledger the profit or loss
accruing at each branch as a separate item.

Sec. 26. All provisions of law inconsistent with
or superseded by any of the provisions of this Act are
to that extent and to that extent only hereby repealed:
Provided, Nothing in this Act contained shall be con-
strued to ref>eal the parity provision or provisions con-
tained in an Act approved March fourteenth, nineteen
hundred, entitled "An Act to define and fix the standard

PAGE 93

The Federal Reserve Act

of value, to maintain the parity of all forms of money
issued or coined by the United States, to refund the
public debt, and for other purposes," and the Secretary
of the Treasury may for the purpose of maintaining
such parity and to strengthen the gold reserve, borrow
gold on the security of United States bonds authorized
by section two of the Act last referred to or for one-
year gold notes bearing interest at a rate of not to exceed
three per centum per annum, or sell the same if necessary
to obtain gold. When the funds of the Treasury on hand
justify, he may purchase and retire such outstanding
bonds and notes.

Sec. 27. The provisions of the Act of May
thirtieth, nineteen hundred and eight, authorizing
national currency associations, the issue of additional
national-bank circulation, and creating a National Mone-
tary Commission, which expires by limitation under
the terms of such Act on the thirtieth day of June, nine-
teen hundred and fourteen, are hereby extended to June
thirtieth, nineteen hundred and fifteen, and sections
fifty-one hundred and fifty-three, fifty-one hundred and
seventy-two, fifty-one hundred and ninety-one, and fifty-
two hundred and fourteen of the Revised Statutes of
the United States, which were amended by the Act of
May thirtieth, nineteen hundred and eight, are hereby

PAGE 94

The Federal Reserve Act

re-enacted to read as such sections read prior to May
thirtieth, nineteen hundred and eight, subject to such
amendments or modifications as are prescribed in this
Act: Provided, however, That section nine of the Act
first referred to in this section is hereby amended so as
to change the tax rates fixed in said Act by making the
portion applicable thereto read as follows :

National banking associations having circulating
notes secured otherwise than by bonds of the United
States, shall pay for the first three months a tax at the
rate of three per centum per annum upon the average
amount of such of their notes in circulation as are based
upon the deposit of such securities, and afterwards an
additional tax rate of one-half of one per centum per
annum for each month until a tax of six per centum per
annum is reached, and thereafter such tax of six per
centum per annum upon the average amount of such
notes.

Sec. 28. Section fifty-one hundred and forty-three
of the Revised Statutes is hereby amended and re-enacted
to read as follows : Any association formed under this
title may, by the vote of shareholders owning two-thirds
of its capital stock, reduce its capital to any sum not
below the amount required by this title to authorize the
formation of associations; but no such reduction shall

PAGE 95

The Federal Reserve Act

be allowable which will reduce the capital of the associa-
tion below the amount required for its outstanding cir-
culation, nor shall any reduction be made until the amount
of the proposed reduction has been reported to the
Comptroller of the Currency and such reduction has been
approved by the said Comptroller of the Currency and
by the Federal Reserve Board, or by the organization
committee pending the organization of the Federal Re-
serve Board.

Sec. 29. If any clause, sentence, paragraph, or
part of this Act shall for any reason be adjudged by
any court of competent jurisdiction to be invalid, such
judgment shall not affect, impair, or invalidate the re-
mainder of this Act, but shall be confined in its opera-
tion to the clause, sentence, paragraph, or part thereof
directly involved in the controversy in which such judg-
ment shall have been rendered.

Sec. 30. The right to amend, alter, or repeal this
Act is hereby expressly reserved.

PAGE 96

Analysis of the Federal Reserve Act

Title

The Federal Reserve Act.

1. Definition of "bank," "board," "district," etc.

Effective

As soon as practicable.

Federal Reserve Districts

Organization Committee composed of

1. Secretary of the Treasury.

2. Secretary of Agriculture.

3. Comptroller of the Currency.

Country to be divided into not less than 8 nor more
than 12 districts.

1. Country to exclude Alaska.

2. Districts not necessarily coterminous with a
state.

PAGE 97

Analysis of the Federal Reserve Act

3. Districts may be readjusted by Federal Reserve
Board.

4. Districts to be designated by number.

5. Each district to have a Federal Reserve City to
be designated by the organization committee.

6. Organization committee may employ assistance.

Banks to become members.

1. All national banks required to become members.

2. Must signify their willingness to join within 60
days.

3. Within 30 days after receiving notice banks
must subscribe 6 per centum of their capital
and surplus to the capital of the reserve banks.

(a) One-sixth to be payable on call.

(b) One-sixth payable within three months.

(c) One-sixth payable within six months.

(d) Remainder subject to call.

4. Shareholders of Reserve Bank to be held re-
sponsible individually.

5. National banks failing to offer to come in the
system within 60 days to cease to be a reserve
agent.

(a) Thirty days* notice to be given.
PAGE 98

Analysis of the Federal Reserve Act

6. National banks failing to join within a year to
be compelled to give up their national charters.

7 . If banks fail to subscribe sufficient capital, stock
of reserve bank may be offered to the public.

(a) No one other than a bank may hold more
than $25,000 stock in a reserve bank.

8. If not sufficient capital then raised, the United
States government may subscribe.

Voting power of stock.

1. Stock held by others than banks not to have a
voting power.

(a) Reserve Board to regulate the transfers of
this stock.

Size of banks.

1. No reserve bank to start with capital of less
than $4,000,000.

//

' ' 2. Each reserve bank shall establish branches in
its district. V ymola>a_W-' . •>>&.

(a) Regulated by Board.

(b) Reserve bank to designate manager of a
branch.

PAGE 99

Analysis of the Federal Reserve Act

Federal Reserve Banks

/ Application for a reserve bank to be filed with
■ Comptroller of the Currency

. 1. By at least five banks in a district.

2. Organization certificate to be acknowledged be-
fore a judge, court of record, or notary public.

3. Certificates to state

(a) Name of reserve bank.

(b) Limits of the district.

(c) Location of reserve bank.

(d) Amount of capital stock.

(e) Etc.

Organization certificate gives power

1. To adopt a corporate seal.

2. To have twenty-year franchise.

3. To make contracts.

4. To have entity before law.

5. To appoint officers not enumerated by this act.

6. To prescribe by-laws.

7 . To exercise specific and incidental powers.

PAGE joo

Analysis of the Federal Reserve Act

8. To deposit government bonds and receive circu-
. lating notes from the Comptroller of the Cur-
\ rency.

9. Cannot exercise these powers until authorized
by Comptroller of the Currency.

Board of directors of a Reserve Bank

1. To consist of three classes :

Class A — Three members chosen by member banks.
Class B — Three members representing commerce,

agriculture and some other pursuit.
Class C — Three members designated by Federal

Reserve Board.

2. Directors of Class B and C not to be connected
with any bank. B directors may, however, be
shareholders.

3. No member of Congress may be member of
Reserve Board, or director or officer of a re-
serve bank.

4. Class A and B directors elected by bank elec-
tors, each member bank having one vote.

5. Chairman of board of directors, (Federal Re-
serve Agent) one of Class C, to have tested
banking experience.

6. One director of each class to retire each year —
thereafter term of office is three years.

FACE joi

Analysis of the Federal Reserve Act

7. Method of selecting directors of Class A and B
prescribed.

8. Specific qualifications required of Class C di-
rector.

9. Chairman to be "Federal reserve agent."

10. Chairman to have tested banking experience.

11. Deputy chairman — from Class C — to have
tested banking experience.

12. Expenses to be paid by reserve banks.

Stock issues ; increase of capital.

/'l. Shares, $100.

2. Stock increased as member banks increase or
grow.

3. Shares held by member banks not to be trans-
ferred or hypothecated.

4. New shares and shares surrendered after or-
ganization to be paid at par plus dividend.

J 5. Failed and liquidated banks and capital de-
creases of member banks corresponds to in-
crease and decrease in reserve bank capital.

/ Division of earnings.

^ 1. Stockholders to receive 6 per cent, cumulative
X dividend.

\. (a) First excepting expenses of reserve banks.

PAGE 102

Analysis of the Federal Reserve Act

2. Remainder to go to Government.

(a) One-half of earnings remaining after the pay-
, ment of these obligations to create a surplus
fund. Until surplus equals 40 per cent of
capital of a reserve bank.

3. Secretary of Treasury may use net earnings to
the government to add to gold reserve or to be
used in liquidating the bonded debt.

4. Reserve banks exempt from taxation, except on
real estate.

State banks

1. May become national banks.

(a) By compliance with national banking law.

(b) When not in contravention of state law.

2. State banks and trust companies may become
members and retain state charters by applying
to Federal Reserve Board for membership in
the system.

(a) Must conforrn to reserve and capital require-
ments of national banks.

(b) Must conform to national law on limitation of
liability.

(c) Must make reports to Comptroller.

(d) Federal Reserve Board may suspend, cancel
or restore a state institution to membership.

PAGE 103

Analysis of the Federal Reserve Act

Federal Reserve Board

To consist of seven members:

1. Secretary of the Treasury.

2. Comptroller of the Currency.

3. Five others appointed by President with con-
sent of the Senate.

(a) These to represent the country geographi-
cally, commercially and industrially.

(b) The five to devote entire time to their duties
and receive salary of $12,000 per annum.

(c) Comptroller to receive $7,000, in addition to
his present salary.

4. Secretary and Assistant Secretaries of the

Treasury, Comptroller and members of Board
not permitted to take office with a member
bank during term of office or for two years
after retiring.

5. At least two members must be experienced in
banking.

6. One member to retire each second year, there-
after term is 10 years.

7. One of the five appointees to be designated by
President as governor of the board.

Board to levy semi-annually upon reserve banks
assessment to pay expenses and salaries of board.

PAGE 104

Analysis of the Federal Reserve Act

Offices to be in Treasury Department, Washington,
D. C.

No member of board may be connected with any
bank.

President may fill vacancies during recess of Con-
gress.

Powers of Secretary of Treasury not curtailed.

Federal Reserve Board to report to the Speaker of
the House of Representatives annually.

Federal Reserve Board has the following powers:

1. To examine Federal Banks and publish weekly
statement.

2. To permit or require one reserve bank to redis-
count for another reserve bank.

3. To suspend for not over 30 days the reserve
requirements.

(a) A graduated tax to apply when reserves fall
below 40 per cent.

4. To supervise the issue and retirement of reserve
notes.

PAGE 105

Analysis of the Federal Reserve Act

5. To add to number of reserve and central reserve
cities.

6. To suspend or remove any officer or director of
a reserve bank.

7. To require writing off of worthless assets of a
reserve bank.

8. To suspend, for cause, and operate a reserve
bank.

9. To require bonds of reserve agents.

10. To exercise general supervision over reserve
banks.

11. To permit national banks to act as trustee,
executor, administrator, or registrar of stocks
and bonds.

12. To employ necessary assistants, etc.

(a) Without civil service act.

Federal Advisory Council, an adjunct to the Board.

1. One member selected by each reserve bank.

2. Salary to be fixed by reserve bank.

3. Council to meet in Washington, D. C, at least
four times a year.

4. Meetings oftener when called by the Board.
PAGE io6

Analysis of the Federal Reserve Act

5. Council has the power:

(a) To confer with Board on general business
conditions.

(b) To make representations concerning matters
under the jurisdiction of the Board.

(c) To make recommendations regarding discount
rates, and other operations of reserve banks.

Operations of Federal Reserve Banks

Reserve banks are granted the power

1. To receive deposits from member banks.

2. To receive deposits from the United States.

3. To receive deposits from other reserve banks.

4. To discount notes of member banks growing
out of commercial transactions.

^

5. To discount acceptances indorsed by a member
bank.

(a) Amount of acceptances not to exceed one-half
of capital of member bank.

(b) Amount of notes of one person not to exceed
10 per cent, of capital and surplus of member
bank.

(c) Amount of commercial notes not to exceed
one-half paid-up capital and surplus of mem-
ber bank,

6. Liability of member banks restricted.

PAGE I07

Analysis of the Federal Reserve Act

7. Board may regulate discount operations of a
reserve bank.

Open-market operations.

1. Reserve bank may purchase and sell in open
market.

(a) Cable transfers.

(b) Bankers' acceptances.

(c) Bills of exchange.

2. A reserve bank has power

(a) To deal in gold coin and bullion.

(b) Buy and sell bonds and notes of certain kinds.

(c) Purchase and sell bills of exchange.

(d) Establish rates of discount.

(e) Establish exchange accounts at home and
abroad.

Government deposits.

1. Secretary of Treasury may deposit public funds
with reserve banks, and use reserve banks as
fiscal agents.

(a) Excepting five per cent, redemption fund.

(b) National banks may still be government de-
positories.

PAGE io8

Analysis of the Federal Reserve Act

Note issues.

1. Board to issue reserve notes to reserve banks.

(a) Notes to be obligations of government.

(b) Redeemable in gold at Treasury.

(c) Redeemable in gold or lawful money at re-
serve bank.

2. Reserve banks to receive these notes upon filing
notes and bills accepted for rediscount.

(a) Board may call upon reserve bank for addi-
tional security.

3. Reserve bank to maintain reserve in gold or
lawful money of 35 per cent of deposits.

(a) Gold reserve against notes in circulation must
be 40 per cent.

4. Reserve bank taxed 10 per cent on notes it is-
sues of any other reserve bank.

5. Reserve bank to deposit with Treasury a re-
demption fund of at least 5 per cent.

6. Reserve bank may reduce outstanding liabilities
by depositing with Treasury notes, gold, certifi-
cates, or lawful money.

7. Reserve agent to hold gold, certificates or law-
ful money for exchange for reserve notes.

8. Reserve bank may substitute collateral held by
agent.

PAGE 109

Analysis of the Federal Reserve Act

9. Comptroller to have dies prepared for engrav-
ing reserve notes.

(a) Reserve banks to bear expense of engraving.

10. Reserve banks to clear checks

(a) Received at par from members.

(b) At par from other reserve banks.

(c) Board to regulate charges exacted of mem-
ber banks for clearing checks.

(d) Board to regulate transfer of funds.

11. New national banks not to issue circulation
based on bonds.

Government bonds to be refunded.

1. After two years from passage of this act and for
twenty years thereafter a bank may retire its
notes and sell its bonds held as security.

2. Applications for this to be filed with U. S.
Treasurer.

3. Retiring bonds to be purchased by Federal Re-
serve Banks.

(a) Bonds purchased in any one year not to ex-
ceed $25,000,000.

(b) Reserve bank purchasing the bonds may issue
circulating notes equal to par value of the
bonds.

(c) These circulating notes to be obligations of
reserve banks.

PAGE no

Analysis of the Federal Reserve Act

4. Government may issue in exchange for out-
standing 2 per cent bonds, against which no
circulation is outstanding.

(a) One-year 3 per cent treasury gold notes, 50
per cent interest.

(b) Thirty-year 3 per cent bonds, 50 per cent.

Requirements of Banks

Country banks should hold reserves

1. Of^iSTpcr cent on demand deposits.
"^^^2. Of /Sfper cent on time deposits.

3. This reserve to be segregated as follows:

(a) In vaults (Compulsory):

12 months 5-12

18 months S-12

24 months 5-12

30 months 5-12

36 months 5-12

Thereafter 4-12

In Federal Reserve Bank (Compulsory):

12 months 2-12

18 months 3-12

24 months 4-12

30 months 5-12

36 months 5-12

Thereafter 5-12

PAGE III

Analysis of the Federal Reserve Act

(b) The remainder to be held for the first 36
months in either the vaults, reserve banks or
in national banks in reserve cities or central
reserve cities.

(c) Thereafter it may be held in vaults or in re-
reserve banks.

Reserve city banks shall hold reserves

1. Of K-per cent, on demand deposits.

2. Of \ per cent on time deposits.

3. This reserve to be segregated as follows:

(a) In vaults (Compulsory):

12 months 6-15

18 months 6-15

24 months 6-15

30 months 6-15

36 months 6-15

Thereafter 5-15

In Federal Reserve Banks (Compulsory):

12 months 3-15

18 months 4-15

24 months 5-15

30 months 6-15

36 months 6-15

Thereafter 6-15

(b) The remainder to be held for the first 36
months in either vault, reserve banks or in
banks in reserve or central reserve cities.

PAGE 112

Analysis of the Federal Reserve Act

(c) Thereafter it may be held in vaults or in
reserve banks.

Central reseryp city banks shall hold reserves

1. Of i8«per cent on demand deposits.

2. Of^St-per cent on time deposits.

3. This reserve to be segregated as follows:

(a) In vaults (compulsory), 6-18 thereof.

(b) In reserve banks (compulsory), 7-18 thereof.

(c) Remainder in either own vaults or in reserve
bank.

Reserves of state banks held in state banks to be
considered as being held by reserve or central re-
serve city national banks.

1. A member bank could not rediscount with a
Reserve association any paper endorsed by non-
member bank except by permission of Federal
Board.

Reserves in reserve banks may be checked against.

Banks in Alaska or outside the continental United
States not required to come into the system.

PAGE 113

Analysis of the Federal Reserve Act

Bank examinations.

1. Comptroller of the currency to authorize bank
examinations.

2. Board to fix salaries of bank examiners.

3. A reserve bank may authorize the examination
of a member bank within its district.

4. Board to order examination of Reserve Banks
at least once a year.

No loan or gratuity may be extended an examiner
by a bank.

No extra fee, etc., may be paid an officer or em-
ployee of a bank.

1. Effective 60 days after passage of this act.

Stockholders of banks are individually responsible.

/ Any country or reserve city bank may make farm
loans.

1. Such loans may not be made by central reserve
city banks.

2. Cannot be made for a time longer than 5 years.

3. Not to exceed 50 per cent of the value of the
land.

PAGE 114

I

Analysis of the Federal Reserve Act

4. Such loans not to exceed 25 per cent of a bank's
capital and surplus or one-third of its time de-
posits.

5. Board may add to list of cities within which the
banks may not loan on farm lands.

Foreign branches

1. May be established by a member bank with
capital exceeding $1,000,000 upon application
to the Board.

2. Branches under regulation of the Board.

3. Reports of branches to be filed with Comptrol-
ler.

Accounts of branches to be separate.

Nothing in this act to repeal the gold standard act.

Aldrich-Vreeland emergency currency act extended
until June 30, 1915.

1. This act amended by reducing tax rate.

Miscellaneous

National banks permitted to reduce their capital.

If a court holds one section of this act unconstitu-
tional, that shall not impair the remainder of the
act.

Right to amend, alter or repeal is reserved.

PAGE lis

INDEX

History

Complete Text of Law

Digest of Federal Reserve Act>

Pagre

.- 5
.- 27
^97

INDEX OF ACT

Pace Sect.

Application

For Membership Federal Reserve Bank-

B.

Bank

Definition

Bank Examinations

See Examinations.
Bank Reserves

See Reserve.
Board

Definition

Federal Reserve.
Branch Banks

How established..

(See Federal Reserve Board.)

Managed by Board of Directors..

How Selected.

Manager of-

Branch Offices

See Branch Banks.

Demand Deposits

Definition

Directors

D.

of Federal Reserve Banks..

of Branch Banks

of Member banks,
prohibited

fees or commissions for loans

27

27

27

88

84
34
34

81

38
34

89

19

4
3

22

PAGE Uf

The Federal Reserve Act

INDEX

Penalty for

Dissolution

of Member Banks effect.

District

Definition

Division of Earnings
See Earnings.

Earnings

of Federal Reserve Banks.

How distributed

Dividends to Stockholders.

U. S. franchise tax

Surplus fund

U. S. Earnings, how applied.

Emergency Currency

Limitations of, Act of May 30, 1908, extended to
June 30, 191S

Examinations

of Member Banks

Periodical

Special examinations by order of Federal Reserve
Board

By Federal Reserve Banks.

Expenses of, how paid

Other visitorial powers

Examiners

How appointed.
Salaries

Not to receive gratuities from banks examinee
Penalty for.

Not to perform other services for banks examined —

Pace Sect

80
27

46
46
47

47
47

94

87

87

87
88
87
88

87
87
89
89

PAGE 118

The Federal Reserve Act

INDEX

Page

F.

Farm Lands

See Loans on Farm Lands.

Federal Advisory Council

How appointed —

Meetings

Powers

Federal Reserve Agent
S'alary

Deputy

Federal Reserve Banks

Organized by Reserve Bank Organization Com-
mittee

Name o f

National Banks to signify intention to become
members

Subscription of member banks
surplus

6% of capital &

Stock (see stock)

Payments, how made-
How organized.

Powers

Directors, how elected.

Class A by Member Banks-

Class B by Member Banks

Class C by Federal Reserve Board.
No senator or congressman eligible..
Electors selected from groups™.

Preferential ballot

Directors, salaries & expenses

Decrease and increase of stoclc

May be Government depositaries and required to

act as fiscal agents

To receive checks at par-

Required to purchase 2% Government bonds at par
after two years ,

61
61
62

42
42

42

27
29

29

29
44
29
34
36
38
39
89
39
39
40
41
4S
44

68
68

77

PAGB 119

The Federal Reserve Act

INDEX

Page Sect.

Limitations of purchase-

May issue notes against bonds purchased

May exchange 2% bonds purchased for 3% bonds
Must re-purchase one-year bonds from year to year

Federal Reserve Board

How appointed

Secretary of the Treasury, Comptroller
Currency, members ex-officio

Terms of office

of the

Expenses, how paid.
First meeting-

Members ineligible to serve as Directors or officers
of member banks for two years after retirement.

Vacancies, how filled

Powers in conflict with those of the Secretary of
the Treasury,

To supervise issue of Federal Reserve Notes.
General powers

Power to fix rules governing exchange charges

To act as clearing house for Federal Reserve Banks

Federal Reserve Cities

Number

Designated by-
How determined

Subject to review by..

Federal Reserve Districts
Number

Designated by number-
How changed-
Reviewed by-

Federal Reserve Notes
How issued

Term and effect-

Reserve against, held by banks..

77
78
79
80

53

53
53
54
54
65

63

55

56
66
57
76
76

28
28
28
28

28
28
28
28

68
68
70

PAGE 12Q

The Federal Reserve Act

INDEX

Redemption of

Withdrawal of collateral security for,

How printed

Where deposited

Denominations

Delivered to Federal Reserve Agent.
Appropriation for.

Expenses of issue, how paid.
Foreign Branches

National banks may establish when.

Regulations to be prescribed by Federal Reserve
Board

May be required to act as fiscal agents of United
States

G.

Gold Reserve

Secretary to maintain

Government Deposits

May be made with Federal Reserve Banks-
With Member Banks

Inconsistent Laws Repealed

Loans on Farm Lands

Member banks not in reserve cities may make-
Federal Reserve Board may extend list

Amount and time of such loans

National Bank

Definition

Limitation of

N.

liabilities extended
due Federal Reserve Banks

to include debts

Need not deposit U. S. Government bonds before
commencing business -— .-.-«_«^

Pate

71
78
73
74
78
72
76
74

92

92

92

98

68
68

98

91
92
91

P4GB m

The Federal Reserve Act

INDEX

Pase

Reduction of Capital Stock, how affected..

Note Issue

See Federal Reserve Notes

Organization Committee

See Reserve Bank Organization Committee.

P.

Penalty

For failure to signify acceptance of provisions of
this act

For violating provisions-

For violating provisions by State Bank Members.

R.
Reserve Bank

Definition

Reserve Bank Organization Committee

Composed of

Powers

S.
State Banks

Converted to National Banks.

May become Members as State Banks.
Conditions of membership-
Regulations

Must be eligible to conversion as National Banks —

Penalty for violation of provisions

Reserve required

Stock

Member banks

Public stock.
Non-Voting
U. S. Stocks

How Public and U. S. stock transferred.

Minimum Capital for any Federal Reserve Bank —

95

80
80
52

27

27
28

48
49
49
49
50
51
84

81
82
38
82
33
88

PAGE IM

THIS BOOK IS DUE ON THE LAST DATE
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OVERDUE.

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UNIVERSITY OF CALIFORNIA LIBRARY